NEW YORK -- U.S. stocks fell after a report showed the nation's factories running closer to full steam than they have in five years, heightening inflation concern.
The Dow Jones Industrial Average, which Thursday climbed to its highest perch in seven months, fell 20.53 to 3933.35. It was the second most active trading day this year.
Stocks tumbled after the Federal Reserve said U.S. factories, mines and utilities operated at 84.7 percent of capacity last month, the highest since March 1989. What's more, industrial output surged 0.7 percent in August, the 15th consecutive monthly increase.
The increase "serves as a reminder to everybody that this economy is still running at a very good clip, that capacity pressures are getting tighter, and we will probably see additional Fed tightening," said James Solloway, director of research at Argus Research.
Caterpillar Inc., General Motors Corp. and Goodyear Tire & Rubber Co. were the biggest losers in the Dow industrials.
Among broader market indexes, the Standard & Poor's 500 index fell 3.62 to 471.19 amid declines in shares of oil and telephone companies and electric utilities.
The Nasdaq composite index slipped 0.75, to 777.91, after rocketing 10.05 to 778.66 Thursday. Losses in Microsoft Corp., Oracle Systems Corp. and U.S. Healthcare Inc. led the decline.
Yesterday marked "triple witching" day, when options and futures on stocks and stock indexes expired concurrently. As a result, trading was active, with 410 million shares changing hands. The last time that many shares traded was on March 18, the first-quarter's triple-witching day.
The Wilshire index closed 25.78 lower at 4681.73, while the Russell 2000 index of small-capitalization stocks was virtually unchanged at 259.79.
Stocks followed a plunge in bonds as the factory use report reignited concern that the economy may be growing too fast. Investors are worried that a booming economy could spark a resurgence of inflation, which erodes the value of fixed-income investments, such as bonds.
The yield on the benchmark 30-year Treasury bond rose to 7.77 percent, up from 7.64 percent at Thursday's close and the highest yield since it was issued on Aug. 15. The yield was the highest for a current bond since June 1992.
Higher rates hurt stocks because they raise the costs of borrowing for corporations and consumers, eventually crimping corporate profits and demand for goods and services. They also make bonds and other fixed-income investments more attractive relative to equity investments.
Wal-Mart Stores Inc. was the most active U.S. issue, followed by shares of Intel Corp., International Business Machines Corp., VLSI Technology Inc. and Ford Motor Co.
IBM shares rallied $1.25 to $71, their highest price in almost two years, after an analyst at Goldman, Sachs & Co. raised his rating to "trading buy."
Microsoft Corp. slipped $1.375 to $56.875. Apple Computer Inc. zTC said that it will start a formal campaign next week to license the Macintosh software operating system that runs its products. Apple rose 37.5 cents to $36.375.