NEW YORK -- U.S. bonds and stocks tumbled yesterday as rising commodity prices renewed concern about inflation.
A falling dollar and comments from a Federal Reserve official added to speculation that inflation may accelerate.
The benchmark 30-year bond plunged 1 5/32, or $11.56 per $1,000 of bonds, sending the yield to 7.41 percent, up 10 basis points, the largest one-day rise since May 23.
The Dow Jones industrial average fell 24.42, to 3,790.41, after four days of gains. Exxon Corp., Aluminum Co. of America and International Business Machines saw the largest declines, each falling more than $1.
Exxon fell $1.875, to $57; Alcoa fell $1.375, to $74.50; and IBM fell $1.25, to $63.625.
Today's descent in the bond market began when the dollar fell as much as 1.3 pfennigs, to 1.634 German marks. Then the Commodity Research Bureau's index rose 3.31, to 238.61, its highest close in 3 1/2 years. Of the index's 21 components, only sugar and lumber fell. Crude oil prices surged as much as 95 cents a barrel to $19.90, the highest in a year.
"The Commodity Research Bureau index is coming on a little bit, and the dollar is weak -- those two things are putting pressure on bonds and stocks," said Todd Clark, senior trader at Mabon Securities.
Many traders and investors consider the dollar and commodities to be indicators of inflation. A rising inflation rate erodes the value of fixed-income securities and pushes interest rates higher.
Meanwhile, John LaWare, a Federal Reserve governor, told Bloomberg Business News that the nation's factory use rate is "approaching a high level" and "that's one of the things that may at some point contribute to inflation pressures."
So far, he said, that isn't happening. "I don't see inflation getting away from us," Mr. LaWare said.
Consumer prices increased at an annual rate of 2.3 percent through May, down from 2.7 percent for all of last year, the Labor Department reported yesterday. Bonds rallied a half-point after the report.
That wasn't enough to mollify traders and investors yesterday.
"We're going to trade back to 8 percent" on bond yields, said Roger Marshall, president of Riggs Investment Management Corp., a Washington firm with $2.5 billion in securities. "Producers are able to raise prices and make them stick. I don't understand why everyone says [inflation] has been whipped."
AK Steel Corp., for example, said Monday that it would raise prices by about 3 percent for certain kinds of steel, the third increase in base steel prices the firm has announced this year.
Among broader stock market measures, Standard & Poor's 500 index fell 1.76, to 460.61. Oil companies, regional banks and telephone companies were the biggest losers.
The Nasdaq combined composite index fell 0.14, to 735.84, as losses in American Power Conversion and Intel Corp. wiped out gains in Microsoft Corp., Oracle Systems Corp. and Apple Computer Inc.
Trading was active, with 271 million shares changing hands by the close of the New York Stock Exchange, where 11 stocks fell for every nine that rose.
Crude oil soared to a 12-month high as traders faced the prospect that world supply won't meet demand by the end of the year.
Chances the Organization of Petroleum Exporting Countries would raise output this year faded yesterday when the group canceled its September meeting, effectively holding its production steady at 24.5 million barrels a day for the rest of the year.
On other markets, soybeans and corn soared on forecasts calling for hot, dry weather over the next 30 days, and precious metals rose as the commodity price surge renewed inflation concerns.
The dollar tumbled to a six-week low against the mark yesterday. The dollar was quoted at 1.637 marks, down from 1.6470 marks '' in New York late Tuesday. It slipped to 102.75 yen from 102.78 yen.