An analyst's reduced outlook for Dell drove concerns about the impact of a slowing economy on tech companies, whose shares led the broader market lower and gave the Nasdaq composite index its biggest one-day drop in a month. Meanwhile, rising oil prices intensified the market's inflation jitters.

"We're not out of the inflation woods yet," said Sam Stovall, chief investment strategist with Standard & Poor's U.S. equity research.

The Energy Department reported that oil inventories dropped by a larger-than-expected amount last week. The news sent crude oil futures up 79 cents a barrel to settle at $74.95 on the New York Mercantile Exchange.

Wednesday's slump was another in the recent string of wildly erratic sessions on Wall Street. Investors have been cautious about trading amid fears that rising energy prices could bring more interest rate hikes at a time when the economy already appears to be cooling off.

At the close, the Dow tumbled 121.59, or 1.09 percent, to 11,013.18. The Dow lost almost 139 points earlier.

Broader stock indicators also dropped sharply. The S&P 500 index fell 13.92, or 1.09 percent, to 1,258.60, and the Nasdaq fell 38.62, or 1.81 percent, to 2,090.24.

Decliners led advancers by more than 2 to 1 on the New York Stock Exchange.

Bonds stayed flat, with the yield on the 10-year Treasury note unchanged at 5.11 percent from late Tuesday. However, a recent bond rally showed many investors were attracted by rising returns as well as the perception that they are less risky than stocks.

Elsewhere, the U.S. dollar was higher against the Japanese yen and barely changed versus European currencies. Gold prices rose to more than $650 an ounce.

After months of intensive focus on the Federal Reserve's interest rate policy, traders have reached a consensus that the central bank will raise rates again when it meets in August.

"We've been totally driven by what the Fed's going to do, but it looks like we've lost that leader," said Scott Merritt, a U.S. equity strategist for JPMorgan Asset Management. "Now it's almost a foregone conclusion that the Fed is done after August and people are trying to find something else to focus on."

The result, he said, is a focus on the "data du jour" — anything from oil prices to inflation data — which can send stocks swinging wildly. Moreover, investors are highly sensitive to any signs that higher interest rates and inflation are hurtingn profits.

The market is in a "decision box," said Rod Smyth, chief investment strategist, Wachovia Securities. If the economy continues to slow enough to persuade the Fed to pause, stocks should break out to the upside. But if inflation remains stubbornly high, the Fed may have to continue raising interest rates, even at the risk of a recession. That would send stocks sharply lower.

Microsoft Corp. sagged 46 cents to $22.64 after the EU fined the software company $357 million for failing to obey its 2004 antitrust order to share program code with rivals, and threatened new penalties of $3.82 million a day beginning July 31. Microsoft said it would appeal, claiming the hefty fine was unfair.

Dell added to the tech sector's burdens after UBS Investment Bank cut the computer maker's second-quarter earnings and revenue forecast, citing evidence of a further slowdown in sales. Dell lost $1.04 to $22.38.

Monster Worldwide Inc. said it may need to restate earnings from 2005 and previous years to correct stock-option accounting. But Goldman Sachs said the company's fundamentals remain intact, lifting the stock 59 cents to $37.83.

Genentech Inc. fell $3.08, or 3.7 percent, to $80.98 after two investment firms downgraded the stock on disappointing second-quarter sales of its Avastin cancer drug.

Gannett Co. fell $1.29 to $55.62 after the company, the largest newspaper publisher in the country, reported an 8.3 percent decline in second-quarter earnings on softness at papers in Britain, as well as higher costs for newsprint and interest payments.

Consolidated volume on the New York Stock Exchange was 2.31 billion shares, down from 2.49 billion shares at the same time Tuesday.

The Russell 2000 index of smaller companies plunged 13.22, or 1.85 percent, to 701.17.

Overseas, Indian stocks rose a surprising 3 percent despite predictions the market would plunge after train bombings that rocked Bombay, the country's financial capital.

Japan's Nikkei stock average fell 1.45 percent. Britain's FTSE 100 rose 0.06 percent, Germany's DAX index gained 0.39 percent and France's CAC-40 rose 0.56 percent.

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