Stocks tumbled Wednesday as a stronger-than-expected surge in consumer prices fanned inflation fears. The blue-chip Dow Jones industrial average (search) sank to its lowest level for 2005.

The Dow Jones industrial average (search) was down 115.05 points, or 1.14 percent, to end at 10,012.36. The Standard & Poor's 500 Index (search) was down 15.28 points, or 1.33 percent, to close at 1,137.50. The Nasdaq Composite Index (search) was down 18.60 points, or 0.96 percent, to finish at 1,913.76.

Late in the session, the Dow tumbled as low as 10,000.46. It has not fallen below the 10,000 level since October 2004. Its lifetime high was 11,750.28, reached in January 2000.

The market downturn occurred despite better-than-expected earnings from big companies like Caterpillar (CAT) and Intel (INTC).

With 1,200 companies releasing earnings this week, investors have plenty of corporate news to sift through, but the economy remains in the spotlight. Stocks sank after the release of the Federal Reserve's "Beige Book" survey, which reported expansion of business activity from late February to early April, but "uneven progress" in some parts of the country, and higher inflation.

Analysts said the day's trading underscores the level of fear on Wall Street following last week's massive sell-off.

"The action last week was pretty destructive to the technical health of the market. That's not to say we're doomed to a larger correction, but I think the damage done last week is not easily undone," said Brian Pears, head equity trader at Victory Capital Management in Cleveland. "There's been good earnings news ... but it seems to me good news is not having as big an effect on stock prices as bad news is having."

The Fed report, which is based on a survey of its 12 regional banks, found rising prices for energy and other commodities are a signficant concern across sectors. Retailers and tourism companies in many regions expressed worry that high energy prices were already dampening business prospects or might soon. Known for the color of its cover, the Beige Book will be used when Fed policy-makers next meet to set interest rates on May 3.

Inflationary pressures were also highlighted by consumer prices, which jumped 0.6 percent in March, according to the Labor Department (search). It was the biggest surge in five months as the costs rose sharply for everything from energy and food to clothing, hotel rooms, airline tickets and medical care.

"Any concern about the CPI, and how it's going to affect the market because of a more aggressive Federal Reserve, are overstated," said Arthur Hogan, chief market analyst at Jefferies & Co. in Boston. "The real focus should be corporate America and earnings and guidance, and that has been better than expected. The fact is, some household names are giving us great news on the earnings front."

Oil futures were volatile, climbing 15 cents to settle at $52.44 on the New York Mercantile Exchange (search), after the government's weekly fuel inventory report showed a decline in crude and gasoline stores; analysts had expected a build for both.

The inflation fears outweighed a number of strong earnings reports from Dow components and other big companies.

Caterpillar (CAT) surged 3.6 percent, or $3.09, to $88.04, after reporting a 38 percent rise in first-quarter profits on strong sales of its heavy machinery and engines, bounding past estimates from analysts surveyed by Thomson Financial. The company also boosted its revenue and profit expectations for the year.

Intel Corp. (INTC) added 3 cents to $22.66 after the chip maker reported robust profits and sales thanks to the continued popularity of notebook computers and their relatively pricier microprocessors. The results easily beat Wall Street estimates, and Intel said its growth is expected to continue in the current quarter.

Yahoo Inc. (YHOO) gained 4.3 percent, or $1.43, to $34.65, after the search powerhouse doubled its first-quarter profits on a rising tide of online advertising. Per-share earnings beat expectations by 3 cents. Yahoo's growth reflects the increasing amount of time consumers are spending online, curtailing their exposure to television, radio, newspapers and magazines.

Ford Motor Co. (F) rose 6 cents to $9.34 after it reported earnings that beat Wall Street expectations.

But the biggest weight on the Dow average was International Business Machines Corp. (IBM), which has not risen a single day yet this month. IBM's stock fell 4.6 percent, or $3.47, to $72.01, a 2-1/2-year low.

Analysts said strong quarterly reports from other major technology companies, such as chipmaker Intel, emphasized how much IBM's recent earnings bombshell was more of its own making rather than due to a broader economic slowdown.

Communications technology company Avaya Inc. (AV) plunged 25 percent, or $2.68 to $8.01 after it said it does not expect to meet its previous revenue forecast for fiscal 2005.

Juniper Networks Inc. (JNPR) soared 6.4 percent, or $1.37, to $22.63, after the network router producer's first-quarter revenues doubled, driving earnings sharply higher, beating expectations.

Embattled carrier US Airways Group Inc.(UAIR) announced it is in advanced discussions to merge with America West Holdings Corp., a combination that would create a national low-cost airline to better compete with discount rivals. America West was down 31 cents at $4.50 on the news. US Airways, which is planning to emerge from bankruptcy-court protection later this year, was up 14 cents at 78 cents per share on the over-the-counter Bulletin Board.

About three stocks fell for every one that rose on the New York Stock Exchange, while declining stocks outnumbered advancing ones by about two to one on the Nasdaq.

Overall, trading was heavy, with 1.77 billion shares changing hands on the New York Stock Exchange, above the 1.46 billion daily average for last year. About 2.07 billion shares were traded on Nasdaq, above the 1.81 billion daily average last year.

The Russell 2000 index, which tracks smaller company stocks, was down 9.98, or 1.68 percent, at 584.96.

Overseas, Japan's Nikkei stock average added 0.21 percent. In Europe, France's CAC-40 slid 0.31 percent, Britain's FTSE 100 shed 0.69 percent and Germany's DAX index fell 0.62 percent.

Reuters and the Associated Press contributed to this report.