Major indexes pared losses somewhat in early afternoon trading after falling more than 2 percent during the session.
While the deal was a rare display of bipartisanship that should stave off a government shutdown, it looks set to widen the US federal deficit further and could fan inflation.
The Treasury saw relatively soft demand for a $16 billion sale of 30-year bonds on Thursday, the final sale of $66 billion in coupon-bearing supply this week.
US stocks tumbled anew on Thursday on fresh concerns over rising bond yields, as investors remained on edge after several days of volatile trading.
World stock markets remained on shaky ground on Thursday as USA bond yields crept back toward four-year highs after congressional leaders reached a two-year budget deal to raise government spending by nearly $300 billion.
"Now we are having acute attention on what happens in the bond markets, so when yields move up there is an unsettling feeling in the equity market".
The pullback came amid another spurt higher in Treasury bond yields, a focal point for investors concerned that the Fed may accelerate rate hikes if inflation rises suddenly.
The fear now is that alongside the economic boost President Donald Trump's tax cut plans may deliver, higher deficit spending could overheat the already strong USA economy and accelerate inflation to levels not seen in over a decade.
"There are two things on the table that are really driving the concerns". The Bank of England lifted its forecasts for economic growth and suggested it may need to raise interest rates faster than previously indicated, sending the pound higher. "It's rising yields and inflation worries", said Chuck Carlson, chief executive officer at Horizon Investment Services, in Hammond Indiana. That pushed the index some 0.2 percent lower while European bourses were weighed down by commodity and technology stocks.
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And the stock market is now in a correction - 10 percent off its record high just two weeks ago.
An improving outlook internationally is adding to pressure on global fixed income markets. For now, our core view is it will be an orderly transition, as equity markets remain underpinned by solid global growth and strong corporate earnings.
"The market is looking for a new sustainable valuation level for both stocks and bonds, and that to me is the underlying catalyst", said Jim Paulsen, chief investment strategist at Leuthold Grup in Minneapolis. S. federal deficit further and could fan inflation.
Britain's 10-year yield climbed eight basis points to 1.634 percent, the highest in more than 21 months on the biggest surge in more than five weeks.
The 10-year notes last rose 38/32 in price to yield 2.7093 percent, down from 2.852 percent late on Friday.
Oil prices settled lower, pressured by rising US output and other factors.
USA crude fell 1.72 per cent to US$60.73 per barrel and Brent was last at US$64.56, down 1.45 per cent on the day.
In the foreign exchange market, the dollar was flat after earlier hitting two-week highs against a basket of major currencies as investors reduced bearish bets on the greenback.
The Bloomberg Dollar Spot Index advanced 0.1 percent.