Blue-chip stocks tumbled after reports of strong retail sales and a soaring trade deficit reignited fears that interest rates will rise. The dollar continued to slip, adding to the pressure on stocks.
The Dow Jones industrial average fell 120.00 points, or 1.1 percent, to close at 10,910.33.
Broader indicators were mixed. The Standard & Poor's 500-stock index fell 7.84, to 1336.29, and the Nasdaq composite index rose 23.52, to 2868.29, helped along by sharp gains in shares of semiconductor makers.
Most stocks were undercut today by a Commerce Department report that showed that retail sales surged 1.2 percent in August, the biggest increase in six months.
The increase was nearly twice what economists had anticipated, and it fed worries that the Federal Reserve will raise interest rates for the third time this year as it tries to prevent inflation from escalating.
Also today, the Commerce Department said the U.S. trade deficit soared to a record $80.7 billion in the second quarter. That news prompted the dollar's latest slide against the Japanese yen, to as low as 105.25 yen. In late New York trading, a dollar bought 105.88 yen, down from 106.65 late Monday. As recently as May, the dollar bought more than 124 yen.
The dollar is now at its lowest level against the yen since May 1996. A weaker dollar can hurt stocks by encouraging foreign investors to put their money in investments in their own countries. It also makes imported goods more expensive, adding to inflationary pressures.
The stream of bad economic news hit bonds hard, sending the yield on the 30-year Treasury bond climbing to 6.12 percent, from 6.05 percent late Monday, as the benchmark bond's price fell $9.69 per $1,000 in face value. Escalating bond yields can also hurt stocks by presenting a guaranteed, stable rate of return.
Bank and brokerage stocks were among the worst performers today, due largely to concern over interest rates. Dow component J.P. Morgan fell 2-13/16, to 122, and Merrill Lynch fell 2 7/8, to 72-15/16.
Insurance stocks faltered as Hurricane Floyd, with tremendous potential for property damage, roared toward the Florida coast. Allstate fell 1-7/16, to 32 1/8, and Cigna fell 2-1/16, to 87 3/8.
Qualcomm, up 17 1/8 at 170 1/2, boosted the Nasdaq after officials of the wireless communications company said they expect to meet or exceed analysts' estimates of earnings of 87 cents a share in the fourth quarter.
Semiconductor companies also posted strong gains after a bullish forecast from an industry executive. Applied Materials rose 5-9/16, to 81-9/16, and Texas Instruments rose 2 7/8, to 91 7/8.