Stocks plunge; Dow in the red for 2006

Wall Street resumed its retreat with another session of steep losses Tuesday as declines in oil and gold prices did little to calm anxiety over inflation. The selloff erased the Dow Jones industrial average’s gains so far in 2006.

Investors struggled to make sense of the Labor Department’s May producer price index, which showed a mild uptick in wholesale prices but a stronger-than-forecast rise in inflation without food or energy costs. The data suggested that energy costs did not grow as much as expected, but the higher core prices nonetheless kept the market on edge.

While a downturn in commodities fed some hopes about easing inflation, persistent uncertainty about whether the Federal Reserve will continue boosting interest rates left investors unwilling to buy stocks amid fears of an economic crash.

“(The PPI data) was not conclusive enough to drive the market,” said Rick Pendergraft, an equity trader for Schaeffer’s Investment Research. If Wednesday’s consumer price data comes in below or meets expectations, that might spark a rally following stocks’ hefty slide over the past month, he said.

Wall Street’s pullback trailed sharp losses on stock markets worldwide, which were driven by worries that a weakening U.S. economy will overturn other economies in its wake. The continued inversion of short- and long-term bond yields was also evidence of the market’s expectations of an economic slowdown.

The Dow tumbled 86.44, or 0.8 percent, to 10,706.14, after losing nearly 100 points on Monday. The Dow is now down 0.11 percent for 2006.

Broader stock indicators pulled back and widened their losses for the year. The Standard & Poor’s 500 index dropped 12.71, or 1.03 percent, to 1,223.69, and the Nasdaq lost 18.85, or 0.9 percent, to 2,072.47.

Declining issues topped advancers by about 4 to 1 on the New York Stock Exchange, where preliminary consolidated volume of 3.3 billion shares led the 2.3 billion shares that changed hands Monday.

Overseas stock markets continued suffering from concerns that rising interest rates will U.S. demand for foreign-made products. Japan’s Nikkei stock average plunged 4.14 percent to a two-year low, and stocks in India slid 4.4 percent to a 52-week low.

Elsewhere overseas, Britain’s FTSE 100 lost 1.8 percent, Germany’s DAX index sank 1.92 percent and France’s CAC-40 was lower by 2.24 percent.

The Labor Department’s PPI report — seen as a precursor to consumer-level inflation — gave Wall Street a mixed reading on wholesale prices. While overall PPI for May gained just 0.2 percent, core prices rose 0.3 percent to top economists’ estimates of 0.2 percent.

The Russell 2000 index of smaller companies dipped 10.47, or 1.53 percent, to 672.72.