U.S. stocks closed Thursday sharply lower as investor sentiment cratered in the face of concerns that the Federal Reserve's interest rate hike would not be enough to tame surging inflation.

All three main Wall Street benchmarks erased gains made during a relief rally on Wednesday.

Technology megacaps slumped, including Google-parent Alphabet Inc, Apple Inc, Microsoft Corp, Meta Platforms, Tesla Inc and Amazon.com.

However, it was not just high-growth stocks, which have struggled in 2022 as the prospect of rate rises had investors questioning their future earnings potential. The selloff hit all areas of the market, as traders headed for the exits.

"Investors aren't looking at fundamentals (such as earnings) right now, and this is more of a sentiment issue," said Megan Horneman, chief investment officer at Verdence Capital Advisors.

The U.S. central bank on Wednesday raised interest rates by half a percentage point as expected and Fed Chair Jerome Powell explicitly ruled out a hike of 75 basis points in a coming meeting.

Traders, however, on Thursday raised their bets on a 75 basis-point hike at the Fed's June meeting. [IRPR]

Worries about Fed policy moves, mixed earnings from some big growth companies, the conflict in Ukraine and pandemic-related lockdowns in China have hammered Wall Street recently, overshadowing a better-than-expected quarterly reporting season.

According to preliminary data, the S&P 500 lost 148.70 points, or 3.51%, to end at 4,149.31 points, while the Nasdaq Composite lost 635.21 points, or 4.90%, to 12,329.65. The Dow Jones Industrial Average fell 1,033.07 points, or 3.03%, to 33,027.99.

Only a small number of the S&P 500's constituents were in positive territory, one of which was Twitter Inc.

Elon Musk revealed on Thursday that Oracle's co-founder Larry Ellison and Sequoia Capital were among investors that would back his takeover of the social media giant with $7.14 billion of financing.

All of the 11 major S&P sectors declined, with consumer discretionary leading the way. The index was dragged by Etsy Inc and eBay Inc, after both forecast Q2 revenue would be below Wall Street's estimates.

The technology sector also slumped, with Intuit Inc among those weighing the heaviest, a day after agreeing to pay a $141 million settlement centered on deception claims around its TurboTax product.

"You're seeing those areas of the market which are purely discretionary, they are the ones getting hit today because everyone is anticipating that this is going to be a challenging period for consumers over the next several quarters," said Horneman of Verdence Capital Advisors.

The CBOE Volatility index, also known as Wall Street's fear gauge, climbed significantly.

The focus now shifts to the U.S. Labor Department's closely watched monthly employment report on Friday for clues on labor market strength and its impact on monetary policy.