Stocks resumed their end-of-summer slump as concerns about inflation and interest rates were compounded by a dismal earnings outlook from Sears, Roebuck and Co.
The Dow Jones industrial average fell 94.67 to close at 10,843.21, having worked its way back from a loss of 205 points earlier in the session.
Broader indicators also closed lower. The Standard & Poor's 500-stock index fell 11.96, to 1319.11, and the Nasdaq composite index fell 16.56, to 2734.24.
Stocks tumbled as a slew of bad news hit Wall Street a day before the scheduled release of the government's August employment report. Above all, investors were rattled by continuing fears that the Federal Reserve has not yet completed its efforts to ward off inflation by raising interest rates.
Those fears escalated today as Federal Reserve governor Edward Kelley told Market News International it would be premature to assume the Fed will wait until next year to raise rates again.
A Labor Department report offered potential justification for higher rates. The government said the growth of American workers' productivity slowed considerably in the spring, while labor costs jumped sharply.
That bad news sent the yield on the 30-year Treasury bond climbing. Bonds are especially sensitive to inflation.
The market was also on guard in advance of the employment report, due out before the start of trading Friday.
Sears weighed heavily on the Dow, falling 3-9/16, to 33 5/8, after saying its third-quarter net income will come in at 63 cents to 67 cents a share, well below analysts' forecast of 82 cents.
Other major retailers also fell as the warning from Sears sparked fears that other retailers will begin to falter. Best Buy plunged 10-9/16, to 61 3/8, after reporting that sales from stores open at least a year--a widely followed gauge of retail strength--rose 11.1 percent in the latest quarter. The increase met analysts' expectations but was not as steep as gains from a year earlier.
The Dow's financial services companies also fell. J.P. Morgan fell 3-11/16, to 125-15/16, and American Express fell 3, to 136. Banks and brokerages are often the first companies to feel the pinch of higher interest rates, because lending volume generally shrinks as it becomes more expensive to borrow money.