Dow sheds 141 amid rate fears

NEW YORK » Anxious investors sent stocks plunging yesterday as surging commodities prices fed fears that the Federal Reserve would extend its two-year streak of interest rate hikes. The major indexes saw their biggest one-day drops since mid-January.

The sharp decline reflected Wall Street's disappointment with the Federal Reserve's statement on Wednesday that more rate tightening could be needed to counter inflationary pressures from energy and metals. Investors were hoping for signals that rates have been raised enough to keep inflation in check.

But yesterday, worries about overseas supplies sent crude futures racing past $73 a barrel, and gold prices jumped to a fresh 25-year high. The commodities strength spooked a market looking for clarity on an economy teetering between growth and inflation.

"I think there are inflation concerns all over the marketplace right now," said Brian Williamson, equity trader at the Boston Company Asset Management. "Because of what the Fed was talking about yesterday, (higher commodities prices) put some anxiety into the marketplace."

Declining profit at American International Group Inc. and media conglomerate Viacom Inc.also stunned a market that has enjoyed yet another quarter of outstanding corporate earnings.

The Dow plunged 141.92, or 1.22 percent, to 11,500.73, its largest slide since falling 213 on Jan. 19. A day earlier, the Dow came within 75 points of its best-ever close of 11,722.98, reached on Jan. 14, 2000.

Broader stock indicators also fell steeply. The Standard & Poor's 500 index slid 16.93, or 1.28 percent, to 1,305.92, and the Nasdaq composite index lost 48.04, or 2.07 percent, to 2,272.70.

Interest rate concerns weighed on the dollar and bonds, with the yield on the 10-year Treasury note climbing to 5.16 percent from 5.13 percent late Wednesday. The U.S. dollar pulled back from earlier gains against the Japanese yen.

A lower-than-expected rise in April retail sales lent some support to views that high energy costs will hinder consumer spending and prevent the economy from overheating. However, hefty gains among commodities made investors anxious that inflation could begin affecting core prices -- excluding volatile food and energy costs -- and bring more interest rate increases from the central bank.

"The market had priced in a very optimistic Fed outlook, and of course we didn't get it," said Ed Peters, chief investment officer at PanAgora Asset Management. "Secondly, we do have this problem with commodities, and it continues to build."