Stocks retreated Tuesday following new worries about rising inflation in Asia and the possibility Ireland might need a bailout.
The Dow Jones industrial average fell 125 points in late morning trading. The losses piled up even as shares of two components of the index, Home Depot Inc. and Wal-Mart Stores Inc., rose following improved earnings.
Asian markets fell overnight after South Korea's central bank raised interest rates to curb growing inflation. There has been speculation in recent days that China will have to take similar steps soon.
Commodities fell because of the worries that China's economy might grow more slowly as well. That, in turn, hurt energy and materials stocks. Alcoa Inc. and ExxonMobil Inc. shares were off about than 2 percent, while Freeport-McMoRan Copper & Gold Inc. fell more than 4 percent.
A report in the U.S. showed inflation at the wholesale level was smaller than predicted. The producer price index rose 0.4 percent last month, half of what economists' expected. The rise was due to a sharp increase in food and energy costs. Stripping out those volatile costs, prices fell 0.6 percent. The report backs up the Federal Reserve's view that inflation remains low because of sluggish growth.
Moves by central banks to increase interest rates would not only act to slow inflation, but also to slow economic growth in Asia. The moves stand in stark contrast to the U.S., which has been trying to drive interest rates even lower to spark growth, which has been sluggish.
Asian economies have been expanding rapidly while the U.S. and much of Europe have been slow to recover from a global recession. The strength in Asia has helped many companies post big profits. So any potential for a slowdown in Asia without further expansion elsewhere could cut into earnings, which hurts stocks.
While Asian countries are dealing with strong growth, European finance ministers are meeting Tuesday. They are expected to discuss a potential bailout for Ireland, which is the latest country to struggle with mounting government debt. Similar problems in Greece earlier this year hurt stocks worldwide as its government received aid to help cover debt problems.
"It's been simmering for a while," Scott Brown, chief economist at Raymond James & Associates, said of the European debt problems. "Now it's coming to a complete boil."
Brown said Ireland is more troublesome for Europe than Greece because more of Ireland's debt is held by big banks, particularly ones in Great Britain. A default by Ireland could be another blow to banks that have only recently recovered from the global credit crisis.
The Dow fell 125.00, or 1.1 percent, to 11,076.97 in late morning trading.
The Standard & Poor's 500 index fell 13.10, or 1.1 percent, to 1,184.65, while the Nasdaq composite index fell 26.12, or 1 percent, to 2,487.70.
Major European indexes fell Tuesday, and the dollar strengthened against the euro. The dollar is hovering near its highest level against the euro since late September.
Britain's FTSE 100 fell 2 percent, Germany's DAX index dropped 1.3 percent, and France's CAC-40 fell 2.1 percent. Japan's Nikkei stock average fell 0.3 percent, while Hong Kong's Hang Seng fell 1.4 percent.
In corporate news, Home Depot said expense controls helped its earnings jump 21 percent. Sales growth remains slow though as consumers avoid major purchases with the economy still weak and unemployment high.
Wal-Mart's profit also rose, but it too struggled with sales in the U.S. Wal-Mart's earnings were helped by strong international operations.
General Motors raised the price range for its common stock to $32 to $33 when it launches an initial public offering Thursday. Strong demand for the shares has led the automaker to raise the IPO price from a range of $26 to $29.
The higher price would help the U.S. government recoup more of the taxpayer-finance bailout that General Motors received.
The common shares are being sold by the U.S. government, the Canadian and Ontario governments and a union health care trust fund.
GM has also added 20 million shares of preferred stock to the IPO. The automaker will now sell a total of 80 million shares of preferred stock for $50 each.
Meanwhile, Treasury yields retreated from a three-month high as investors moved into the safety of bonds. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.87 percent from 2.95 percent late Monday.