* Macy's jumps after reporting upbeat Q4 same-store sales
* Comcast offers to buy Sky for $31 bln
* Indexes down: Dow 1.2 pct, S&P 1.3 pct, Nasdaq 1.2 pct (Updates to close)
By Caroline Valetkevitch
NEW YORK, Feb 27 (Reuters) - U.S. stocks suffered on Tuesday their biggest daily drops since the selloff three weeks ago after comments from Federal Reserve Chairman Jerome Powell revived fears about more interest-rate increases than expected this year.
Powell gave an upbeat view on the U.S. economy and said data has strengthened his confidence on inflation. Traders boosted bets the central bank will squeeze in a fourth rate hike this year following the remarks.
Bond yields also rose, while the Cboe Volatility Index , the most widely followed barometer of expected near-term volatility of the S&P 500 index, rose 2.79 points to 18.59, its largest one-day gain also in nearly three weeks.
Powell's first semi-annual economic testimony as Fed chief before the U.S. Congress comes at a sensitive time for the market, which had been trying to recover from the recent selloff, which confirmed the market was in a correction, or down 10 percent from a Jan. 26 record high. Fears over rising rates in part had sparked the selloff. In his prepared remarks, Powell hinted that the central bank would stick to its current path of gradual rate hikes, but his comments during congressional testimony seemed to spook the market.
"He said it's his impression the economy was getting stronger, which subtly gave the indication that he was going to raise his personal forecast for four rate hikes this year," said Michael O'Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.
The Fed is widely expected to raise rates next month and in December signaled a total of three rate hikes this year. Fed officials will release new forecasts, including their views on the appropriate future path of rate hikes, when they meet next month.
The Dow Jones Industrial Average fell 299.24 points, or 1.16 percent, to 25,410.03, the S&P 500 lost 35.32 points, or 1.27 percent, to 2,744.28 and the Nasdaq Composite dropped 91.11 points, or 1.23 percent, to 7,330.35.
Indexes posted their biggest daily percentage losses since Feb. 8.
"Sure enough, rates here have moved up a little bit as well, probably a little bit more so here based on his testimony, but I don't think we are in a danger zone or anything of a spike in rate hikes by the Fed," said Mark Kepner, managing director, sales and trading in Chatham, New Jersey.
Comcast fell 7.4 percent after the U.S. cable giant offered to buy Sky for $31 billion in an unsolicited approach, taking on Rupert Murdoch's Fox and Bob Iger's Walt Disney in the battle for Europe's biggest pay-TV group.
The stock was the biggest drag on the S&P 500. Disney dropped 4.5 percent and Twenty-First Century Fox fell 3 percent following the news.
Macy's rose 3.5 percent after reporting higher-than-expected same-store sales growth for the fourth quarter. The biggest U.S. department store chain said sales at established stores could mark their first annual gain in four years.
Declining issues outnumbered advancing ones on the NYSE by a 3.38-to-1 ratio; on Nasdaq, a 3.07-to-1 ratio favored decliners.
The S&P 500 posted 44 new 52-week highs and 4 new lows; the Nasdaq Composite recorded 93 new highs and 50 new lows.
About 7.4 billion shares changed hands on U.S. exchanges. That compares with the 8.3 billion daily average for the past 20 trading days, according to Thomson Reuters data.
Additional reporting by Chuck Mikolajczak in New York and Sruthi Shankar and Parikshit Mishra in Bengaluru; Editing by Nick Zieminski and Chizu Nomiyama