Stocks snapped a three-session rally that had propelled the Dow to within three points of reaching the psychologically important milestone for the first time. Investors had built up an uneasy optimism that corporate profits will remain robust as the Federal Reserve navigates a soft landing for the economy.

That confidence was dealt a setback today after the Labor Department reported a bigger-than-expected jump in core wholesale inflation, which unearthed the market's fears of higher interest rates. Also exasperating investors was a downgrade of Dow component Intel ahead of its third-quarter earnings report.

"There's that feeling of the Goldilocks scenario, and the market has been at very overbought levels," said Chris Johnson, director of quantitative analysis for Schaeffer's Investment Research. "The gains we've seen over the last three or four weeks have taken the market to an extreme, and it warrants a rest. At some point you just extend yourself too far."

The rest came in a pullback in the Dow of 30.58, or 0.26 percent, to 11,950.02, according to preliminary calculations.

Broader stock indicators also declined. The Standard & Poor's 500 index was down 5.00, or 0.37 percent, at 1,364.05, and the Nasdaq composite index fell 18.89, or 0.80 percent, to 2,344.95.

Light, sweet crude was down $1.01 at $58.93 a barrel on the New York Mercantile Exchange.

Concern about inflation helped push bonds higher, with the yield on the benchmark 10-year Treasury note slipping to 4.77 percent from 4.79 percent late yesterday. The dollar was mixed against other major currencies, while gold prices fell.

The Labor Department said its producer price index fell 1.3 percent in September, the biggest decline in three years, while its core PPI, which excludes food and energy prices, climbed 0.6 percent, rather than 0.2 percent expected.

The stock rally that began in September had been predicated on hopes for strong corporate profits amid a slowing economy. Wall Street was able to weather a series of mixed economic reports on the belief that central bankers might even have enough evidence to begin cutting rates in early 2007.

Meanwhile, a huge drop in oil prices helped bolster hope consumer spending would be given a shot in the arm. The new round of inflation worries jolted the markets, and gave rise to speculation the Fed might have to rethink its strategy.

"I think the Fed is going to weigh some of the data here," said Andrew Richman, managing director of SunTrust Banks Inc.'s personal asset management division. "They're pretty transparent that inflation is a concern."

A deluge of earnings reports due this week, including 12 from Dow components, fed optimism the rally would continue. Intel reported after the closing bell that third-quarter profit fell 35 percent, but topped Wall Street projections.

The stock tumbled during the regular session after Goldman Sachs pre-emptively downgraded the world's biggest chip maker to "Neutral" from "Buy." The broker said Wall Street projections for the company are too aggressive heading into the quarter, and that it continues to prefer rival Advanced Micro Devices Inc.

Intel fell 71 cents, or 3.3 percent, to $20.90, during the regular session, but was up 54 cents to $21.44 in after-hours trading. AMD fell 90 cents, or 3.6 percent, to $24.48 in regular trading.

Concern about technology company's profits also extended to EMC Corp., the world's biggest maker of computers and software that store records. The company reported profit dropped 33 percent, and that it planned to cut 1,250 jobs. Shares fell 13 cents to $12.70.

United Technologies Corp., another Dow component, fell $1.51, or 2.3 percent, to $65.28. The diversified manufacturer reported third-quarter profit rose 21 percent to top Wall Street projections, but warned a cooling of the U.S. housing market might hurt future quarters.

Merrill Lynch rose 41 cents to $84.52 after it reported third-quarter profits more than doubled. The world's largest brokerage pinned the rise on trading revenue, and from a one-time gain from its deal with money manager BlackRock Inc.

Chicago Mercantile Exchange Holdings Inc.'s agreement to acquire fellow commodities exchange CBOT Holdings Inc. for $8 billion sent shares of both companies higher. CBOT spiked $17.48, or 13 percent, to $151.99, while the CME rose $13.25, or 2.6 percent, to $516.50.

Declining issues outnumbered advancers by more than a 2 to 1 on the New York Stock Exchange, where volume came to 1.52 billion shares.

The Russell 2000 index of smaller companies fell 4.57, or 0.59 percent, to 764.91.