NEW YORK (AP) - Stocks tumbled yesterday as a troubling reading on wholesale inflation underscored the drag of high energy prices on the economy. The Dow Jones industrial average fell more than 100 points.

Yesterday's economic data illustrated how the steep run-up in energy costs this year is affecting businesses. The Labour Department said its index of producer prices jumped 1.4 percent in May - the largest increase since November.

The core producer price index, which strips out often volatile food and energy prices, rose by a mild 0.2 percent. But Wall Street remains concerned that companies are having to swallow ballooning costs - and may soon be forced to pass them on to already strapped customers.

Although crude dipped to about $134 a barrel Tuesday on the New York Mercantile Exchange, it remains near record levels.

Subodh Kumar, global investment strategist at Subodh Kumar & Assoc. in Toronto, said inflation concerns are weighing on stocks as investors try to readjust their models to factor in the effects of energy prices staying high.

The price of oil has doubled in the past year, prompting some investors to call it a bubble, but others say a pullback in prices would only lessen - not eliminate - the pricing pressure.

"The market and bonds are recalibrating themselves lower because of inflation," Mr. Kumar said.

Meanwhile, Goldman Sachs - despite posting a tamer-than-expected 11 percent decline in quarterly profit - aggravated jitters by releasing a downbeat report on the broader banking industry.

The report estimated that credit losses from deterioration in the mortgage and lending markets will not peak until early 2009, and that US banks, having already raised about $120 billion in capital, will need to raise an additional $65 billion.

"We're back in the mode where people are guessing how many more billions of financial institution write-offs there are going to be...That, and what's going to happen with inflation," said Scott Wren, equity strategist for Wachovia Securities.

According to preliminary calculations, the Dow Jones industrial average fell 108.78, or 0.89 percent, to 12,160.3. The weakest stocks among the 30 Dow companies were financial companies: American International Group Inc., American Express Co. and Bank of America Corp.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 9.21, or 0.68 percent, to 1,350.93, while the Nasdaq composite index fell 17.05, or 0.69 percent, to 2,457.73.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.21 percent from 4.27 percent late on Monday.

Besides the rise in wholesale inflation, the government reported a 3.3 percent decline in May home construction and a 1.3 percent dip in building permits - signs of persistent weakness in the struggling housing market.

Light, sweet crude for July delivery fell 60 cents to settle at $134.01 a barrel on the New York Mercantile Exchange.

The dollar fell against most other major currencies, while gold prices rose.

In corporate news, Goldman Sachs Group Inc., the world's largest investment bank, posted a better-than-expected profit of $2.05 billion during its second fiscal quarter.

But along with the rest of the financial sector, Goldman shares slid $2.65 to $179.44.

Wal-Mart Stores Inc. trimmed its capital spending forecast for fiscal 2009, saying it still plans to build fewer so-called supercentres amid a slowdown in the US economy.

The stock, one of the 30 that comprise the Dow industrials, declined 62 cents to $58.69.

Declining issues outnumbered advancers by about three-to-two on the New York Stock Exchange, where volume came to 1.09 billion shares.

The Russell 2000 index of smaller companies dropped 4.17, or 0.56 percent, to 736.57.

Overseas, Japan's Nikkei stock average fell 0.04 percent.

Britain's FTSE 100 closed up 1.16 percent, Germany's DAX index advanced 0.98 percent, and France's CAC-40 rose 0.61 percent.