NEW YORK - Anxious investors sent stocks plunging Thursday 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 deep 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 Thursday, 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 Boston Company Assetment Management. "Because of what the Fed was talking about yesterday, (higher commodities prices) put some anxiety into the marketplace."
Declining profit at Dow component 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 points 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 and was flat versus European currencies.
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."
Crude futures leaped as traders cast aside reports of increased U.S. reserves and worried about a Texas refinery snag and political unrest in Nigeria. A barrel of light crude jumped $1.19 to settle at $73.32 on the New York Mercantile Exchange. Elsewhere, gold prices soared to $725 an ounce and carried silver prices higher.
The Commerce Department said retail sales grew 0.5 percent last month, less than the 0.6 percent increase in March and the 0.8 percent gain economists had predicted. The department also reported that business inventories rose a better-than-forecast 0.7 percent for March as companies kept lean warehouse stockpiles.
Meanwhile, the Labor Department said first-time jobless claims fell by 1,000 to 324,000 last week, above estimates for 315,000 but still evident of the job market's strength.
AIG said late Wednesday its profit slid 16 percent last quarter despite solid results from its general insurance unit. Its earnings missed analyst estimates, but revenue was well ahead of expectations. AIG fell $3.39 to $63.15.
Viacom posted a 9 percent drop in quarterly profit as it accumulated debt for acquisitions and buybacks. However, its earnings came in above Wall Street targets. Viacom lost 76 cents to $38.86.
JCPenney Co. said cost-cutting measures boosted its profit by 22 percent, and while the department store chain raised its full-year outlook, the estimate was still below Wall Street views. JCPenney sank 93 cents to $65.98.
UnitedHealth Group Inc. slumped $1.80 to $44.37 after the health insurer said it may have to cut $286 million from past earnings because of the way it accounted for stock options.
Declining issues led advancers by almost 4 to 1 on the New York Stock Exchange, where volume of 1.84 billion shares handily beat the 1.62 billion shares that changed hands Wednesday.
The Russell 2000 index of smaller companies tumbled 18.47, or 2.38 percent, to 757.47.
Overseas, Japan's Nikkei stock average lost 0.53 percent. Britain's FTSE 100 sank 0.68 percent, Germany's DAX index dropped 1.04 percent and France's CAC-40 was lower by 0.29 percent.