A gradual acceleration of inflation and a rally in commodities have made investors increasingly nervous about stocks, as many on Wall Street predict a slowdown in corporate profits for 2005. Those concerns were in high relief today as the feeble dollar and bearish bond market combined with a rise in gold and oil prices to create a storm of selling.

"Profit margins have peaked, inflation is on the way up, and those aren't generally good things for stocks," said John Caldwell, chief investment strategist for McDonald Financial Group, part of Cleveland-based KeyCorp. "So weakness in the bond market on top of that tends to make people skittish. ... It just makes people question their thinking that much more."

The Dow closed down 107.00, or 0.98 percent, at 10,805.62, diminishing hopes that the index would soon break the 11,000 mark for the first time in nearly four years.

The broader gauges also slid. The Standard & Poor's 500 index declined 12.42, or 1.02 percent, to 1,207.01. The Nasdaq composite index fell 12.26, or 0.59 percent, to 2,061.29.

Oil futures came within 2 cents of their all-time intraday high, but fell back late in the session, settling up just 6 cents at $54.65 per barrel on the New York Mercantile Exchange. Weekly government data showed a larger-than-expected rise in domestic crude inventories, but declines in supplies of gasoline and distillate fuel, which includes heating oil.

Some traders had speculated that oil prices would climb higher still amid supply concerns and as cold weather caused shudders in the Northeast. Energy stocks finished sharply lower, however, with the AMEX Oil Index dropping 2.62 percent. Exxon Mobil Corp. was the worst-performer on the Dow, tumbling 3.7 percent, or $2.31, to $60.79.

It was also a challenging day on the bond market, as the yield on the 10-year Treasury note rose to its highest level since July, settling at 4.51 percent, up from 4.39 percent late yesterday. The selling stepped up after the Federal Reserve released its survey of business conditions, known as the Beige Book; the report said the economy was strong, but suggested inflation may be starting to rise. Some saw this as a hint that the Fed might take a more aggressive posture on raising short-term rates at its March 22 meeting.

Bond traders had already moved to bearish positions as the Treasury auctioned $15 billion in five-year notes today, and prepared to sell $9 billion in 10-year notes tomorrow. Some of the nervousness was related to an ongoing debate about foreign buyers' appetite for U.S. debt, especially in the face of a weaker dollar. Further widening the currency gap, a sharp rise in industrial production in Germany and good economic news out of Japan contributed to the strength of the euro and the yen.

Michael Strauss, chief economist at Commonfund, said a combination of solid economic growth and rising inflation risk is "a caution flag that the market's perception that the Fed is going to be close to completing its tightening moves is probably not correct."

"I think the bond market is going through a reality check," Strauss said. "The bottom line is that the economy looks healthier, it looks like it's absorbed some hiccups ... but inflation is coming. And more importantly, the Fed recognizes this."

The move on the 10-year note pressured interest-rate sensitive sectors, including banking stocks; the Dow Jones Financial index declined 1.36 percent. Of the S&P sectors, only materials posted a gain for the day, rising a meager 0.22 percent, according to the SPDR exchange-traded fund that tracks it.

Chip maker Xilinx Inc. shed 19 cents to $31.27, despite raising its revenue forecast for the March quarter. The company now expects sales to be up 5 percent to 8 percent sequentially, above prior estimates for 1 percent to 5 percent growth.

Canadian mining company Noranda Inc. was down 23 cents at $19.02 after announcing plans to merge with Falconbridge Ltd., a major nickel and copper producer, in a deal that would create one of the largest base-metal companies in North America. Noranda already owned 60 percent of Falconbridge.

Polymer and specialty chemicals producer Crompton Corp. added 14 percent, or $1.85, to $15.31, after saying it had agreed to purchase Indianapolis-based Great Lakes Chemical Corp. in a stock-swap transaction valued at $1.8 billion. Great Lakes gained 24 percent, or $6.42, to $33.60.

Kmart Holding Corp. gained 2.2 percent, or $2.42, to $111.66, after the retailer posted a $309 million profit for the fourth quarter, a 14 percent increase over the previous year. Kmart is expected to close its acquisition of Sears, Roebuck and Co. in the coming weeks.

The Russell 2000 index, which tracks smaller company stocks, shed 6.90, or 1.08 percent, to 631.08.

Decliners outnumbered advancing issues by more than 3 to 1 on the New York Stock Exchange. Volume came to 1.71 billion shares, compared to 1.53 billion yesterday.