NEW YORK — Inflation fears sent stocks plunging yesterday as jitters over high oil prices exacerbated signals that the Federal Reserve will keep lifting interest rates to contain price increases. The Dow Jones industrial average sank nearly 200 points.

Fed Chairman Ben Bernanke told an international monetary conference that while rising energy costs have helped slow the pace of economic growth, core inflation — excluding energy and food — was near the central bank's highest tolerance level and could warrant further rate tightening.

The news stunned investors, who had hoped the Fed was almost done raising rates after recent data showed signs that the economy was beginning to cool off. But with Bernanke reiterating that inflation still posed a problem, traders worried about higher interest rates in a slowing economy limiting the potential for stocks to make long-term gains.

"In reality, nothing's really changed," Steve Neimeth, senior vice president and portfolio manager at AIG SunAmerica, said of the prospect for more rate hikes. "But now, Bernanke has finally said the consumer is weak, and that inflation is at the high end of the Fed's range. The market's basically nervous that they've gotten a clear signal from him."

Stocks already were under pressure from a jump in oil prices fueled by Iran's threat to cut oil exports if Western nations punish the country over its nuclear program, unnerving a market already concerned that severe hurricanes could devastate Gulf Coast refineries again this summer.

At the close yesterday, the Dow plunged 199.15, or 1.77 percent, to 11,048.72. The Dow is 5.1 percent below a six-year high of 11,642.98, reached May 10.

Broader stock indicators also slumped. The Standard & Poor's 500 index dropped 22.93, or 1.78 percent, to 1,265.29; the Nasdaq composite index fell 49.79, or 2.24 percent, to 2,169.62, falling into negative territory for 2006.

Bonds slipped after Bernanke's speech increased the likelihood that the Fed will boost interest rates again at its June 28-29 meeting. The yield on the 10-year Treasury note rose to 5.02 percent from 5 percent late Friday.

Elsewhere, the U.S. dollar recovered slightly against the Japanese yen and was flat versus European currencies. Gold prices returned to about $650 an ounce.

Overseas stock markets saw persistent weakness from worries about slowing global demand. Japan's Nikkei stock average slumped 0.77 percent, Britain's FTSE 100 gained 0.04 percent, Germany's DAX index plunged 1.16 percent and France's CAC-40 was lower by 0.88 percent.

Oil-related stocks lost earlier gains despite the boost in crude prices. Chevron Corp. dropped $1.40 to $59.35, ConocoPhillips fell $1.97 to $62.54 and Dow Jones industrial Exxon Mobil Corp. fell $1.60 to $60.05.

Declining issues outpaced advancers by almost 4 to 1 on the New York Stock Exchange, where consolidated volume of 2.41 billion shares was about even with the 2.42 billion shares that changed hands Friday.