NEW YORK - Wall Street tumbled Wednesday as worries about inflation and troubles in the finance sector kept traders cautious ahead of a new economic report from the Federal Reserve.
The Dow Jones Industrial Average sank 151.03 points (1.23 percent) to 12,138.73 and the Nasdaq composite shed 30.31 points (1.24 percent) to 2,418.63 at 1423 GMT.
The Standard & Poor's 500 broad-market index shed 14.90 points (1.10 percent) to 1,343.54.
The market remained on edge in the wake of worries about the banking sector after Lehman Brothers's news that it needs fresh capital. Also keeping investors on the defensive was a worry that the new focus on inflation by the Federal Reserve may mean higher interest rates.
Patrick O'Hare at Briefing.com said sentiment remains "pinned down by inflation concerns and rising interest rates," and added: "there is another set of headlines surrounding the financial sector that is predominantly negative in tone."
A rise in crude oil prices added to the grim mood. New York futures rose 3.29 dollars to 134.60 dollars a barrel.
Economist Joseph LaVorgna at Deutsche Bank said recent comments from Fed chairman Ben Bernanke and others highlighting inflation risks have left the market unsettled.
"The Fed commentary as of late appears to have consolidated around a more uniform view that food and energy inflation in particular are threatening the Fed's ability to maintain a significant degree of policy accommodation," or low rates to keep the economy growing, said LaVorgna.
He added that the Fed's latest Beige Book survey of economic conditions set to be released later in the day will be scrutinized, "and the inflation commentary is likely to garner the most attention."
Lehman Brothers, which has been in the eye of the storm over the finance sector, fell another 4.07 percent to 26.38 dollars, extending heavy losses from earlier this week as it seeks fresh capital to shore up its balance sheet.
Among other big Wall Street investment firms, Goldman Sachs shed 1.74 percent to 164.29 dollars and Morgan Stanley lost 1.96 percent to 38.46. Both firms report their earnings next week.
Elsewhere, Staples rose 4.15 percent to 24.11 dollars as it struck a deal to buy Dutch office product supplier Corporate Express, creating the world's biggest office supplies group with 94,000 staff.
The terms value Corporate Express at nearly 3.2 billion euros (4.96 billion dollars).
Bonds edged higher. The yield on the 10-year US Treasury bond dropped to 4.070 percent from 4.099 percent Tuesday and that on the 30-year bond eased to 4.691 percent against 4.701 percent. Bond yields and prices move in opposite directions.