Updated from 4:05 p.m. EDT

Another dour reading on the economy, this one from

Federal Reserve

Chairman Ben Bernanke, clobbered stocks Monday, as the twin specters of inflation and recession continued to haunt Wall Street.

The

Dow Jones Industrial Average

fell 199.15 points, or 1.77%, to 11,048.72, while the

S&P 500

declined 22.93 points, or 1.78%, to 1265.29. The

Nasdaq Composite

plunged 49.78 points, or 2.24%, to 2169.62. The 10-year Treasury bond fell 7/32 in price to yield 5.02%.

Speaking to a monetary conference in Washington, Bernanke noted that inflation readings "have been higher in recent months" and "are unwelcome." He also said the policymaking Federal Open Market Committee "will be vigilant to ensure that the recent pattern of elevated monthly core inflation readings is not sustained."

At the same time, Bernanke was cautious on the economy, saying "the anticipated moderation of economic growth seems now to be under way. Consumer spending, which makes up more than two-thirds of total spending, has decelerated noticeably in recent months."

The assessment, made around 2 p.m. EDT, extended already heavy losses in the stock market that stemmed from rising oil prices. While virtually every sector ended lower, the heaviest selling occurred in economically sensitive sectors such as energy, metals and commodities, and in speculative sectors such as biotech and semiconductors.

Monday's fall continues a period of high volatility in the stock market. Last Tuesday, the Dow plunged 184 points and the Nasdaq lost 46 points on nearly identical comments about inflation from Chicago Fed President Michael Moskow. While that decline was erased in subsequent sessions, the rout was the fourth time in May that the Dow had lost more than 100 points in a single session.

Barry Hyman, equity market strategist with EKN Financial, said Bernanke described an economic situation the market doesn't want to hear.

"Being inflation-vigilant when you're acknowledging an economic slowdown is not what investors want," he said. "That scenario borders on stagflation, which is a death sentence for equities should it occur. It's clear that the market is due for more corrective behavior."

After Bernanke's comments, the odds of a 25-basis point hike at the Fed's meeting later this month jumped to 76% from 50%. The Fed has raised short-term rates by 400 basis points in the last two years, and the fed funds rate is now 5%.

To view Gregg Greenberg's video take on today's market, click here

.

Dow components

Alcoa

(AA) - Get Report

and

Caterpillar

(CAT) - Get Report

lost 3.7% and 4.8%, respectively. Of the Dow's 30 components, 29 finished the session with losses.

The Nasdaq was pressured by declines in

Celgene

(CELG) - Get Report

, which lost 5.5%, and

Biogen Idec

(BIIB) - Get Report

, down 4.9%.

About 1.63 billion shares changed hands on the

New York Stock Exchange

, with decliners outpacing advancers by a 3-to-1 margin. Volume on the Nasdaq was 1.78 billion shares, with decliners beating advancers 3 to 1.

Oil prices rose after Iran's Ayatollah Ali Khamenei threatened to cut off crude supplies if the West uses force to stop his country's nuclear research. In Nymex floor trading, July crude, which jumped to a three-week high on Friday as the employment report soothed interest rate concerns, was up another 27 cents to close at $72.60 a barrel.

"Geopolitical concerns will be the focus today," said Peter Cardillo, chief market strategist with S.W. Bach & Co. "The price of oil is surging as Iran is threatening to use it as a weapon. It looks like we'll be in for a bumpy ride."

Despite the rise in crude, the Philadelphia Oil Service Sector index ended down 3.7%, and the Amex Oil index was off 2.7%. In other sectors, the Philadelphia Semiconductor Sector index lost 3%, and the Philadelphia Housing Sector index fell 3.9% with all components in the red.

Commodity prices were higher. Silver added 21 cents to $12.30 an ounce, copper rose a penny to $3.60 a pound, and gold gained $7.70 to $648.70 an ounce.

Gold producer

Newmont Mining

(NEM) - Get Report

was upgraded at Citigroup to buy from hold. Still, shares fell 72 cents, or 1.4%, to close at $52.58.

Another mining giant,

Freeport-McMoRan

(FCX) - Get Report

, dropped 8.5% after cutting its estimate of second-quarter copper sales from its venture in Indonesia. The stock lost $4.83 to finish at $51.91.

Monday's economic docket featured the Institute for Supply Management's nonmanufacturing index for May, which fell to 60.1 from 63 in April. The latest reading on the services index matched economists' expectations.

Tuesday will see speeches from Kansas City Fed President Thomas Hoenig and Fed Governor Susan Bies, while Wednesday features a talk on the economy from Atlanta Fed President Jack Guynn. The Commerce Department releases a report on the April trade deficit on Friday.

"Investors are looking to the Fed comments to find out what data are most important," said Marc Pado, U.S. market strategist with Cantor Fitzgerald. "Despite what the Fed says, its mandate is price stability, not economic growth. However, inflation is being driven by forces beyond our control. Therefore, will the Fed act as it always has done in the past when faced with inflation by raising interest rates?"

Saturday and Sunday saw a crush of clinical data from a cancer conference in Atlanta, including positive results in a breast cancer trial for

GlaxoSmithKline's

(GSK) - Get Report

Tykerb and in lung and kidney cancer trials for

Pfizer's

(PFE) - Get Report

Sutent.

Wyeth's

( WYE) temsirolimus also performed well in a phase III trial for renal cell carcinoma.

With stocks sputtering, Wall Street defended several names. Prudential raised its rating on

JetBlue

(JBLU) - Get Report

to overweight from neutral, while Piper Jaffray upgraded

Circuit City

(CC) - Get Report

and

BMC Software

(BMC)

.

JetBlue gained 4 cents, or 0.4%, to $10.79. Circuit City was higher by 6 cents, or 0.2%, to close at $30.45. BMC Software added 64 cents, or 3.1%, to $21.35.

Also in ratings moves, Bear Stearns upgraded

SanDisk

(SNDK)

to outperform from peer perform, as concerns over the company's oversupply have eased. Shares reversed earlier gains, however, and finished down $1.01, or 1.8%, to $54.12.

Overseas markets were mostly lower. London's FTSE 100 was down 0.1% to 5762, and Germany's Xetra DAX fell 1.2% to 5621. In Asia, Japan's Nikkei lost 0.8% overnight to 15,668, and Hong Kong's Hang Seng added 0.7% to 16,016.