Updated from 4:07 p.m. EDT

Stocks closed with losses Tuesday as a spike in wholesale prices and hawkish commentary from a Federal Reserve governor sowed inflation fears.

The Dow Jones Industrial Average fell 62.84 points, or 0.61%, to 10,285.26, while the S&P 500 lost 11.96 points, or 1%, to 1178.14. The Nasdaq Composite dropped 14.30 points, or 0.69%, to 2056. The 10-year Treasury was lately up 3/32 in price, yielding 4.48%. The dollar rose against the yen and euro.

"Today was a very trying and fear-driven day," said Barry Hyman, equity market strategist with Ehrenkrantz King Nussbaum. "The feel of the market is really bad. You've got all the ingredients -- fear, financial concern, breakdowns in leading sectors. It's all leading us to hopefully where a bottom will be made."

About 1.61 billion shares traded on the New York Stock Exchange, with decliners beating advancers by an 8-to-3 margin. Trading volume on the Nasdaq was 1.48 billion shares, with advancers outpacing decliners 2 to 1.

The Labor Department's producer price index for September rose 1.9%, surpassing economists' 1.1% estimate. On a core basis stripping out food and energy, the index rose 0.3%, above expectations of a 0.2% rise.

"It certainly doesn't alleviate any pressure," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "The Federal Reserve is probably going to use this in their decision to raise rates again. The only positive spin you can put on this is that the data wasn't that far above consensus."

At a presentation in Salt Lake City on Tuesday afternoon, San Francisco Fed President Janet Yellen warned that the fed funds rate must come up further before the risk of inflation is neutralized.

"I consider it reasonable to put the current neutral rate in the range of 3.5% to 5.5%," said Yellen. "At 3.75%, the current federal funds rate is toward the lower end of this band. This suggests a presumption that the rate will need to be raised further. Indeed, financial markets now appear to expect the funds rate to peak at about 4.5% -- in the middle of this neutral range."

Oil dipped as traders tried to get a fix on Hurricane Wilma, which was upgraded from a tropical storm as it now has sustained winds of 75 mph. Wilma was last reported 200 miles south-southeast of the Cayman Islands. Crude for November delivery finished down $1.16 to $63.20 a barrel, while gasoline futures shed 9 cents to $1.73 a gallon.

The year-old surge in energy prices was the topic of a speech by Federal Reserve Chairman Alan Greenspan in Tokyo. Greenspan predicted that the global economy will feel the pinch of higher oil prices but not the stagnation it suffered in the last energy crisis.

"The effect of the current surge in oil prices, though noticeable, is likely to prove significantly less consequential to economic growth and inflation than the surge in the 1970s," Greenspan said.

IBM ( IBM) finished higher after the tech giant said Monday that third-quarter earnings slipped 2% from a year ago to $1.52 billion, or 94 cents a share, on sales of $21.53 billion. Excluding items, IBM earned $1.26 a share in the quarter. Analysts were forecasting earnings of $1.13 a share on sales of $21.71 billion.

On a conference call, the company said its fourth quarter will show double-digit earnings growth. IBM rose 89 cents, or 1.1%, to $83.48.

Tech investors spent Tuesday's session awaiting earnings reports from Intel ( INTC) and Yahoo! ( YHOO), which both reported the bell.

Intel posted third-quarter earnings of $2 billion, or 32 cents a share, as revenue rose 18% to $9.96 billion. Excluding a charge from a legal settlement, Intel earned 34 cents a share. The microprocessor giant was expected to earn 33 cents a share on revenue of $9.92 billion. Looking ahead, Intel expects fourth-quarter revenue in a range between $10.2 billion and $10.8 billion. The stock rose 26 cents, or 1.1%, to close at $23.72, but was down in after-hours trading.

Yahoo! reported third-quarter earnings of $254 million, or 17 cents a share, beating analysts' estimates for EPS of 14 cents. Excluding acquisition costs, revenue rose to $932 million from $655 million a year earlier. The company expects fourth-quarter revenue to fall between $1.03 billion and $1.08 billion. The stock finished down 46 cents, or 1.4%, to $33.70 but was up 1% in the after-hours session.

Also after the bell Tuesday, Motorola ( MOT) said third-quarter profits rose to $1.75 billion, or 69 cents a share, from $479 million, or 20 cents, a year earlier. Earnings included a tax benefit and the sale of an investment in Nextel Communications. Excluding items, Motorola earned 30 cents a share, beating the consensus by 2 cents. Sales climbed 26% to $9.42 billion from last year.

Motorola forecast fourth-quarter sales of $10.3 billion to $10.5 billion, with a profit in a range of 32 cents to 34 cents a share. Analysts, on average, are expecting EPS of 33 cents. Motorola finished Monday's session at $20.17, up 23 cents or 1.2%.

"One of the biggest roadblocks is the difficulty for corporate America to be positive about upcoming quarters," said Art Hogan, chief market analyst with Jefferies. "Overall it's been tough to forecast ahead because of so many headwinds, which I think is playing in to the market today."

In other earnings, Merrill Lynch ( MER) posted record quarterly profit of $1.38 billion, or $1.40 a share, in the third quarter, up from $922 million, or 93 cents a share, a year ago. Revenue rose 38% to $6.69 billion from last year. The Thomson First Call consensus was for earnings of $1.18 a share on revenue of $6.17 billion. The stock added 12 cents, or 0.2%, to $61.21.

Johnson & Johnson ( JNJ) earned $2.6 billion, or 87 cents a share, up slightly from $2.3 billion, or 78 cents a share, a year ago. Sales totaled $12.3 billion, up 7% from last year. The Thomson First Call consensus was for earnings of 86 cents on revenue of $12.5 billion. J&J was lower by 3 cents, or 0.1%, to close at $62.97.

Guidant ( GDT) slid 11.3% after J&J said that it is considering alternatives to its previous acquisition agreement for the company. The stock dropped $8.17 to $64.21.

3M ( MMM) posted third-quarter earnings of $853 million, or $1.10 a share, up from $775 million, or 97 cents a share, a year earlier. The results include a charge of 2 cents a share related to the acquisition of CUNO. Sales rose 8.3% to $5.38 billion from a year ago. The Thomson First Call average consensus was for a profit of $1.08 a share on revenue of $5.31 billion.

3M's board also approved the buyback of an additional $300 million in common stock, upping the 2005 repurchase total to $2.3 billion. Looking ahead, the company expects fourth-quarter earnings of $1.02 to $1.03 a share. The current consensus estimate is for EPS of $1.04 a share, according to Thomson First Call. The stock added $2.24, or 3.1%, to $74.71.

Homebuilder M.D.C. ( MDC) said its third-quarter profit rose 15% to $121 million, or $2.62 a share, beating estimates by 6 cents. Revenue rose 14% to $1.17 billion, about $10 million better than expected. The stock lost $1.62, or 2.3%, to $68.50.

Profit tumbled 64% in Novellus' ( NVLS) third quarter to $23.4 million, or 17 cents a share, missing estimates by 4 cents. Sales fell 18.5% to $338.9 million, about $17 million better than forecast. The shares were lower by $3.06, or 12.3%, to close at $21.83.

United Technologies ( UTX) posted third-quarter net income of $821 million, or 81 cents a share, rising from $693 million, or 68 cents, a year earlier. Revenue climbed 17% from a year ago to reach $10.91 billion. Analysts expected earnings of 79 cents a share on revenue of $10.81 billion, according to Thomson First Call.

United Technologies also raised its full-year earnings outlook to a range of $3.08 to $3.10 a share, up from a previous range of $3 to $3.07. The Thomson First Call average consensus stands at $3.09 a share. Shares fell $1.16, or 2.3%, to $49.95.

Chiron ( CHIR) said it won't meet previously issued 2005 profit guidance of $1.20 to $1.45 a share because of a shortfall in flu vaccine shipments. The company had hoped to ship up to 26 million doses of Fluvirin this season. Chiron lost 15 cents, or 0.4%, to $43.15.

Goldman Sachs downgraded Texas Instruments ( TXN) to underperform from in-line, citing increased competition from Qualcomm ( QCOM). The firm also upgraded Entegris ( ENTG) to outperform from in-line, believing that merger and business spinoffs will improve long-term earnings.

Entegris fell 10 cents, or 1%, to $9.73, while TI rose 3 cents, or 0.1%, to $29.80.

Meanwhile, Goldman Sachs upgraded Axcelis Technologies ( ACLS) to outperform from in-line, citing valuation. The firm also upgraded Applied Micro Circuits ( AMCC) to in-line from underperform, as shares now sit at a five-year low.

Axcelis gained 11 cents, or 2%, to $5.74. Applied Micro Circuits was up a penny, or 0.4%, to close at $2.75.

Merrill Lynch downgraded both Ford ( F) and General Motors ( GM) to sell from neutral, citing uncertainty looming in the auto sector and costs related to downsizing and labor model changes. Ford fell 2.2% to $8.47, while GM was off 3.2% to finish at $29.12.

Overseas markets were mostly lower, with London's FTSE 100 lower by 0.4% at 5264 and Germany's Xetra DAX down 0.6% at 4947. In Asia, Japan's Nikkei lost 0.4% overnight to 13,352 while Hong Kong's Hang Seng gained 0.4% to 14,597.

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