US stocks plummeted on Monday as investors worried that Federal Reserve Chairman Ben Bernanke's tough talk on inflation meant the Fed wasn't done with interest-rate increases.
The Nasdaq fell more than 2 percent, while the Dow industrials and the S&P 500 each fell more than 1 percent. Monday's sell-off marked the second straight day of losses for the stock market and drove the Nasdaq back into the "loss" column for the year.
The stocks of big manufacturers and other companies seen as more vulnerable to an economic slowdown led the sell-off, with shares of heavy equipment maker Caterpillar Inc and diversified manufacturer 3M Co among the biggest drags on the Dow industrials.
Bernanke's speech "not only dashes hopes for a pause, but it puts the rate hikes back on the table for the rest of the year," said Barry Hyman, equity market strategist, Ehrenkrantz, King, Nussbaum.
The Dow Jones industrial average tumbled 199.15 points, or 1.77 percent, to end at 11,048.72. The Standard & Poor's 500 Index slid 22.93 points, or 1.78 percent, to finish at 1,265.29. The Nasdaq Composite Index dropped 49.79 points, or 2.24 percent, to close at 2,169.62.
The Dow sank to its lowest close in almost three months. The Nasdaq registered its biggest one-day percentage decline since January 20. The S&P index of financial services companies and banks slid 1.6 percent, reflecting investors' increased concerns about rising rates, which can make it harder for banks to make money.
The market had been sharply lower before Bernanke's comments, partly on concerns about rising crude oil prices. Oil prices rose after Iran warned that a "wrong move" by the West in the stand-off over Tehran's nuclear ambitions would endanger flows from the Gulf, which pumps nearly a quarter of the world's crude.
US crude for July delivery rose 27 cents to settle at $72.60 a barrel on the New York Mercantile Exchange. Stocks sharply extended losses after Bernanke, speaking to a group of bankers in Washington, said the Fed needs to be vigilant to make sure inflation stays under control even as the economy starts to show a slower pace of growth.
Interest-rate futures reflected a much higher chance of a June rate increase than they did before Bernanke's comments. The dollar edged higher after the Fed chief's remarks, while the yield on the 10-year US Treasury note, which moves in the opposite direction of its price, rose to 5.03 percent from about 5 percent before his speech. The note's price fell 7/32.
Shares of Caterpillar fell 4.8 percent, or $3.48, to $69.33, while shares of 3M dropped 2.2 percent, or $1.83, to $82.95, both in New York Stock Exchange trading.
The Nasdaq broke below the 2,200 technical level, which analysts said could take the index even lower. Shares of Apple Computer Inc were the second-worst drag on the Nasdaq. Apple fell 2.7 percent, or $1.66. to $60.
The Biotech Index fell 3.6 percent to 645.20 after the US Food and Drug Administration paved the way for multiple sclerosis drug Tysabri to go back on the market, but added several restrictions and safeguards.
Tysabri had been withdrawn last year when it was linked to a rare but potentially fatal brain disease.
Shares of Biogen Idec Inc, the maker of Tysabri, fell 4.9 percent, or $2.32, to $45.39 on Nasdaq, while shares of the distributor, Elan Corp tumbled 13 percent, or $2.46, to $16.52 on the NYSE.
Trading was active on the NYSE, with about 1.63 billion shares changing hands, above last year's daily average of 1.61 billion, while on Nasdaq, about 1.78 billion shares traded, below last year's daily average of 1.80 billion.
The market's breadth was overwhelmingly negative, with almost four stocks falling for every one that rose on both the NYSE and the Nasdaq.
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