The yield on the 10-year Treasury note rose to 2.43 percent, from 2.35 percent Wednesday.
The yield, which rises as the price of the note falls, surged 0.25 percentage point Wednesday after the Fed's comments. It's up sharply since May 3, when it hit a year low of 1.63 percent.
Government bonds are used as benchmarks for mortgage rates. The sharp increase in yields prompted investors to sell the stocks of homebuilders, whose business could be hurt if the pace of home buying slows down. Even an encouraging report on home sales Thursday failed to arrest the slide.
PulteGroup plunged $2.34, or 11 percent, to $18.43. D.R. Horton fell $2.23, or 9.6 percent, to $21.20.
Markets were also unnerved after manufacturing in China slowed at a faster pace this month as demand weakened. That added to concerns about growth in the world's second-largest economy. A monthly purchasing managers index from HSBC fell to a nine-month low of 48.3 in June. Numbers below 50 indicate a contraction.
Japan's Nikkei index lost 1.7 percent. In Europe, the FTSE 100 index of leading British shares fell 3 percent while Germany's DAX dropped 3.3 percent.
In currency trading, the dollar rose against the euro and the Japanese yen.
In commodities trading, Gold plunged $91.70, or 6.6 percent, to $1,281 an ounce. The precious metal is down 24 percent this year.
Gold's attraction as an alternative investment has faded as the dollar and bond yields have risen. Higher interest rates increase the opportunity cost of holding the metal which has no return. Investors also bought gold as an insurance against inflation as the Fed pumped money into the economy. Inflation has remained tame and the central bank now appears to be nearing the end of its stimulus program.
The rising dollar pushed oil prices lower. A stronger dollar makes oil more expensive for holders of other currencies. The price of crude oil fell $3.12, or 3.1 percent, to $95.35 a barrel in New York.
Some investors said the sell-off in stocks may be overdone. The Fed is considering easing back on its stimulus because the economy is improving. The central bank Wednesday upgraded its outlook for unemployment and economic growth.
"People are overreacting a little bit," said Gene Goldman, head of research at Cetera Financial Group. "It goes back to the fundamentals, the economy is improving."
The central bank's assessment of the economy was backed by a survey Thursday that showed manufacturing in the Philadelphia region expanded at the fastest pace in two years. The Philadelphia Fed's monthly index of manufacturing conditions rose to 12.5 in May, the highest reading since April 2011.
Among other stocks making big moves:
* GameStop, a video game store chain that sells new and used games, rose $2.59, or 6.7 percent, to $41.12 after Microsoft backpedaled and said that there will be no limitations on sharing games on its upcoming Xbox One gaming console.* Rite Aid fell 21 cents, or 7.1 percent, to $2.90 after the nation's third-largest drugstore chain lowered its forecast for 2014 earnings.