US stocks sank on Wednesday as concerns about rising interest rates and heightened tensions in Iraq, along with worries about China's efforts to cool its red-hot economy, overshadowed investors' recent enthusiasm about strong corporate profits.
Shares of metals and mining companies were the hardest hit, led by aluminium producer Alcoa Inc, on concerns that credit restrictions in China could slow its growth and curb its huge appetite for raw materials.
First-quarter earnings from US companies have shown solid improvement over the previous year. But concerns are mounting that the market may already reflect corporate America's rapid recovery.
"It's pretty clear that the good earnings news we're getting was the reason for last year's big rise, so most of this earnings news is priced in," said Edgar Peters, chief investment officer at PanAgora Asset Management Inc. "There is a chance that this is as good as it gets."
An announcement from Nortel Networks Corp that a probe into its books had revealed deeper accounting problems further dampened Wall Street's mood.
The Dow Jones industrial average fell 135.56 points, or 1.29 percent, to 10,342.60. The Standard & Poor's 500 Index dropped 15.70 points, or 1.38 percent, to 1,122.41, and the technology-focused Nasdaq Composite Index fell 42.99 points, or 2.12 percent, to 1,989.54.
Trading was brisk, with about 1.9 billion shares traded on the New York Stock Exchange and 2 billion traded on Nasdaq.
Prices of industrial metals like aluminium and copper plunged on Wednesday, along with gold and silver, as China's Premier Wen Jiabao told Reuters the country may take forceful action to slow down its economy, likely limiting money available for steel, cement and aluminium projects.
Alcoa, the world's biggest aluminium producer, fell $1.29, or 4 percent, to $31.01. United States Steel Corp lost $2.82, or 8.5 percent, to $30.56, while Freeport-McMoRan Copper & Gold slid $2.30, or 7.2 percent, to $29.50.
Speculation that the Federal Reserve may soon hike short-term interest rates to put a cap in inflation was putting investors on guard, particularly with a Fed policy-setting meeting coming up next week and gross domestic product data due on Thursday. Investors will pay particular attention to the GDP deflator figure, a broad measure of inflation, for clues to the timing of the Fed's next potential move.
Global security fears also continued to nag at investors as US forces again attacked insurgents in the Iraqi city of Falluja, traders said.
Nortel Networks was the most heavily traded stock on the New York Stock Exchange, losing a quarter of its value as the telecom gear maker fired its top three executives and forecast a 50 percent drop in its 2003 earnings. Nortel's New York-listed shares slid $1.59, or 28 percent, to $4.05.
Comcast Corp rose 23 cents to $30.20 after the No 1 US cable company said it would withdraw its $48.4 billion bid to buy Walt Disney Co Disney fell 23 cents to $23.95.
Boeing Co kept a lid on the Dow's losses after the aerospace giant posted better-than-expected quarterly earnings and raised its profit and revenue forecasts. Its shares rose 48 cents to $44.03.