Wall Street plummeted sharply as inflation soared above expectations in October, partly on higher energy costs, sending edgy investors diving for cover.

The Dow Jones Industrial Average closed down 62.59 points (0.59 percent) at 10,487.65, while the tech-heavy Nasdaq closed lower 15.47 points (0.74 percent) at 2,078.62.

The broad-market Standard and Poor's 500 index dropped 8.38 points (0.71 percent) to 1,175.43.

"I think there is some concern about inflation now," said Michael Metz, chief investment strategist at Oppenheimer and Co. The producer price index figures "were definitely a disappointment for a second month in a row," he added.

Stocks swooned after the Labor Department reported US producer prices increased by 1.7 percent in October against September, while core producer prices, which exclude volatile food and energy prices, went up 0.3 percent.

The headline number caught many on Wall Street off guard, as most economists had only expected inflation to post a gentler 0.6 percent increase.

"The inflation news gave everyone an excuse to take profits," said Peter Cardillo, a market strategist at SW Bach.

"Oil prices were lower but the effect of higher prices finally worked its way in the pipeline," Cardillo said.

Traders said the higher-than-expected inflation numbers have raised fresh concerns about the direction of US interest rates.

In other news, Fannie Mae, the largest US mortgage lender, lost 1.35 percent to 69.25 dollars.

Fannie Mae said it might have to post a nine-billion-dollar loss if the Securities and Exchange Commission determines the company has been accounting improperly for derivatives. The SEC is examining the home loan giant's accounting practices.

In share action, Ford Motor Co. closed down 14 cents, or 0.98 percent at 14.12 dollars while ChevronTexaco closed lower three cents, or 0.06 percent, at 52.54 dollars.

A total 1.35 billion shares changed hands on the New York Stock Exchange while 1.88 billion shares swapped hands on the Nasdaq.

Wal-Mart's stock fell as the world's largest retailer disappointed on its sales performance in the third quarter.

The company posted a 14 percent rise in third-quarter profits, compared with the same period a year ago, but sales of 68.5 billion fell short of Wall Street analysts' forecasts of 69.2 billion. Wal-Mart closed down 81 cents, or 1.40 percent, at 56.89 dollars.

Bond prices fell. The yield on the 10-year US Treasury bond rose to 4.208 percent from 4.190 percent Monday while that on the 30-year bond climbed to 4.902 percent against 4.895 percent.

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