Updated from 4:10 p.m. EDT

Stocks closed to the downside Wednesday as the latest economic reports showed that the threat of inflation, and therefore the possibility of further rate tightening, remains very real.

The

Dow Jones Industrial Average

lost 63.08 points, or 0.55%, to 11,406.20, and the

S&P 500

was off 12.99 points, or 0.99%, at 1300.26. The

Nasdaq Composite

sank 37.86 points, or 1.72%, to 2167.84, its worst single-session point decline in more than a month.

About 1.44 billion shares changed hands on the

New York Stock Exchange

, with decliners beating advancers by a 4-to-1 margin. Volume on the Nasdaq was 1.84 billion shares, and three times as many stocks declined as the number that rose.

Michael Sheldon, chief market strategist with Spencer Clarke, said the economic data "are likely to make the

Federal Reserve

more concerned about rising wage pressures in the economy."

Before the opening bell, the Labor Department rattled Wall Street with its report on second-quarter productivity and unit labor costs. Productivity rose 1.6% compared with the preliminary reading of a 1.1% increase, and labor costs were revised upward to 4.9% from 4.2%. First-quarter unit labor costs were revised sharply higher, to 9% from 2.5%. The climbing costs rekindled concerns about the potential for more interest rate hikes.

"This number is going to offer some fears that the Federal Reserve may have to move sometime before year-end," said Peter Cardillo, chief market strategist with S.W. Bach & Co. "The jump in unit labor costs shows that inflationary wage pressures are still there."

Separately, the Fed's beige book found decelerating to moderate growth from mid-July through August. Most of the central bank's 12 districts reported slowing consumer spending, as reflected by "sluggish sales of vehicles and housing-related goods."

Also, the report noted that high prices of energy and other commodities "persisted since the last report, though most of these increases do not appear to have passed through to finished consumer goods."

Meanwhile, the Institute for Supply Management said its services index rose to a reading of 57 in August from 54.8 the previous month.

Corporate news was on the light side, but investors were still digesting the news from Tuesday afternoon that carmaker

Ford

(F) - Get Report

has named a new chief executive, Alan Mulally from

Boeing

(BA) - Get Report

.

Ford rose 16 cents, or 1.9%, to finish at $8.55. Boeing was lower by 92 cents, or 1.2%, to $74.44.

On the Dow, chip giant

Intel

(INTC) - Get Report

led the way lower after the company said it will cut 10,500 jobs. Following Intel's announcement, Prudential raised its stock price target to $16 from $14, and Citigroup raised its target to $23 from $21.

Intel tumbled 68 cents, or 3.4%, to $19.31. Rival

Advanced Micro Devices

(AMD) - Get Report

tanked by $1.69, or 6.5%, to $24.53.

The Nasdaq was pressured by declines of 5% or more in

Broadcom

(BRCM)

,

Nvidia

(NVDA) - Get Report

,

Tellabs

(TLAB)

and

Urban Outfitters

(URBN) - Get Report

.

Energy prices eased again. Crude for October delivery sank $1.10 to close at $67.50 a barrel, its lowest level since March, in the wake of

Chevron's

(CVX) - Get Report

report this week that it and its partners have found what could be the largest domestic oil field in the Gulf of Mexico. Natural gas, gasoline prices, and heating oil also fell.

"Volume remained fairly light on the first day back from summer vacation," said Marc Pado, U.S. market strategist with Cantor Fitzgerald. "The impact on oil was rather muted because this is a long-term benefit, and we still face significant short-term geopolitical problems in regards to energy. Investors shook off the decline in bonds in favor of the positive outlook on the economy."

Treasuries continued to pull back Wednesday. The 10-year note lost 4/32 in price, yielding 4.80%.

After the bell, homebuilder

Hovnanian

(HOV) - Get Report

is expected to post third-quarter results. Coupled with a rise in bond yields, the pending report sank the Philadelphia Housing Sector Index.

Among other housing stocks,

Meritage Homes

(MTH) - Get Report

dropped 5.3%,

Centex

(CTX)

was off 4.4%,

Pulte Homes

(PHM) - Get Report

lost 3.4%, and

Toll Brothers

(TOL) - Get Report

fell by 2.6%.

Hewlett-Packard

(HPQ) - Get Report

said George Keyworth, its longest-serving director, is leaving the boardroom after a probe into press leaks around the time of the ouster of former CEO Carly Fiorina. H-P slid 62 cents, or 1.7%, to $35.84.

Fairchild Semiconductor

(FCS)

raised its third-quarter sales estimate to a range of flat to up 2%, compared with its previous forecast of flat sales. The chipmaker cited lower-than-expected cancellation rates. Still, Fairchild was lower by 17 cents, or 0.9%, to close at $17.85.

Overseas, Europe's equities were dropping. London's FTSE 100 lost 0.9% to 5929, and Frankfurt's Xetra DAX was off 1.2% to 5813. In Asia, Tokyo's Nikkei 225 eased 0.6% to 16,284, and Hong Kong's Hang Seng sank 1% to 17,258.