A sharp jump in wholesale prices raised inflation fears on Wall Street Tuesday, sending stocks lower despite strong profit reports from a number of Dow Jones industrials. Heavy trading in the energy sector also took a toll on the major indexes.

Better-than-expected earnings from Johnson & Johnson (JNJ), IBM Corp. (IBM) and United Technologies Corp. (UTX) were overshadowed by the biggest increase in the Labor Department's Producer Price Index (search) in 15 years. The PPI, which measures prices at the wholesale level, rose 1.9 percent in September on high energy and food costs. With those costs removed, "core" PPI rose 0.3 percent, still higher than the 0.2 percent expected on Wall Street.

The fears were mitigated somewhat by a drop in crude oil prices. A barrel of light crude was quoted at $63.20, down $1.66, on the New York Mercantile Exchange. However, that sent oil stocks, most notably Exxon Mobil Corp. (XOM), falling in response.

Analysts noted that volume was moderate and losses were modest, even as the growing evidence of inflation all but assured that the Federal Reserve would continue raising interest rates, thus making it difficult for businesses to borrow money to fuel growth.

"It's not that people are saying, 'get me out of this market,' but there's enough headwinds out there that makes it tough to say, 'I want to own this market," said Jay Suskind, head trader at Ryan Beck & Co. "There's stocks to buy, there's sectors to buy, there's news every day. But it's hard to jump in here right now with a lot of money."

In late afternoon trading, the Dow fell 43.54, or 0.42 percent, to 10,304.56. Broader stock indicators also lost ground. The Standard & Poor's 500 index (search) dropped 9.04, or 0.76 percent, to 1,181.06, and the Nasdaq composite index (search) dropped 10.97, or 0.53 percent, to 2,059.33.

Bonds edged higher as stocks fell, with the yield on the 10-year Treasury note falling to 4.48 percent from 4.50 percent late Monday. The dollar rose against most major currencies, while gold prices fell.

In recent weeks, Fed officials have expressed concern over rising oil prices, both in terms of fueling inflation and hampering economic growth. Fed Chairman Alan Greenspan, in Tokyo for a speech Tuesday, said the jump in energy prices "will undoubtedly be a drag (on the economy) from now on."

With wholesale prices rising, the Fed is likely to continue to raise rates through the end of the year, according to Hugh Johnson, chairman and chief investment officer at Johnson Illington Advisors.

"The fear in the marketplace is that the Fed is going to be seduced by this inflation data into raising rates too high," Johnson said. "And while earnings are good right now, earnings won't be good in 2006 if rates go too high."

Strong profits at Dow component Johnson & Johnson led a steady stream of positive earnings reports, though the market appeared somewhat unreceptive. The healthcare conglomerate saw a 12 percent jump in profits, led by higher medical device sales. Johnson & Johnson, which beat Wall Street profit forecasts by a penny, slipped 6 cents to $62.94.

IBM gained $1.40 to $83.99 after posting a slight decline in profits that nonetheless beat analysts' expectations by 13 cents per share. The key earnings report, which excluded its recently sold personal computer business, was seen evidence of the success of the company's restructuring efforts.

Manufacturer United Technologies saw positive growth across its diversified businesses, particularly in its Carrier heating and air conditioning division, which boosted profits by 19 percent from a year ago. United Technologies nonetheless lost $1.27 to $49.84.

Fellow manufacturer 3M Corp. (MMM) jumped $2.33 to $74.80 as the company not only beat Wall Street forecasts by 4 cents per share, but raised its outlook for the fourth quarter — a strong statement considering the increasingly dire forecasts for the economy.

Earnings at Wall Street firm Merrill Lynch & Co. (MER) rose 49 percent to a new quarterly record, and the company exceeded profit expectations by 22 cents per share on the strength of its proprietary investments. Merrill Lynch rose 30 cents to $61.39.

The energy sector fell along with crude prices. Exxon Mobil, easily the most active issue on the NYSE after a block of 24 million shares were sold on the market at 1 p.m., lost $2.05 to $56.81, while rival Chevron Corp. dropped $1.97 to $57.98.

Declining issues outnumbered advancers by nearly 5 to 2 on the New York Stock Exchange, where volume came to 1.22 billion shares, compared with 1.15 billion traded at the same point on Monday.

The Russell 2000 index of smaller companies fell 7.32, or 1.16 percent, to 626.05.

Overseas, Japan's Nikkei stock average fell 0.36 percent. In Europe, Britain's FTSE 100 closed down 0.43 percent, France's CAC-40 dropped 0.63 percent for the session, and Germany's DAX index lost 0.64 percent in late trading.