NEW YORK (CNN/Money) - Stocks slumped Tuesday, as rising oil prices and a falling dollar sparked new fears about inflation.

Wednesday's report on consumer prices could keep such concerns alive.

The Dow Jones industrial average (down 174.02 to 10,611.20, Charts) sank about 174 points Tuesday, its biggest one-day point drop since May 19, 2003, when it fell more than 185 points. Tuesday's decline represented a fall of 1.6 percent, its biggest one-day percentage fall since Aug. 5 of last year.

Drug stocks and Home Depot were the biggest Dow losers. However, declines were broad based, with 29 out of 30 stocks falling

The broader Standard & Poor's 500 (down 17.43 to 1,184.16, Charts) index and the Nasdaq composite (down 28.30 to 2,030.32, Charts) posted slightly smaller declines.

The major gauges fell last week on worries about inflation and some profit-taking after the market's recent run up. U.S. financial markets were closed Monday for President's Day.

Inflation fears were stirred last week by some aspects of Federal Reserve chairman Alan Greenspan's commentary before Congress, and by Friday's surprisingly strong rise in producer prices (PPI) at the core level, which excludes volatile food and energy prices.

Traders and investors worry that persistently higher inflation means the Federal Reserve will need to remove its "measured" stance on boosting short-term interest rates and eventually get more aggressive. Over time, higher rates would tend to slow economic growth, as well as corporate profits. All of which would hurt stock prices.

Inflation watchers get two key pieces of information Wednesday: the consumer prices index (CPI) for January and the Federal Reserve minutes from the last monetary policy-setting meeting.

The CPI and core CPI are both expected to have risen 0.2 percent. In December, CPI fell 0.1 percent while the core rose 0.2 percent.

After last week's jump in producer prices, investors will be looking to see if that was passed on to the consumer.

"I don't think tomorrow's CPI is going to be as bad as PPI was last week," said Donald Selkin, director of research at Joseph Stevens. "I think we've had this big selloff, and we're going to try to stabilize over the next few days."

The Fed minutes may provide further insight into the central bank's stand on short-term interest rates.

Quarterly earnings are due from home improvement retailer Lowe's (Research) and homebuilder Toll Brothers (Research)

Lowe's is expected to have earned 59 cents per share, according to a consensus of economists surveyed by First Call. That would be up from 50 cents a year ago.

Toll Brothers is expected to have earned $1.15 per share, up from 62 cents a year ago, reflecting the still-strong housing market.

Tuesday's selloff was an extension of the one that started last week, said Katie Townshend, chief market technician at MKM Partners, sparked by Tuesday's rise in oil prices and decline in the dollar.

"The market was already poised for a pullback," she said. "When people noticed oil breaking through $50 today -- a key psychological level -- that may have accelerated the selling."

Crude oil surged Tuesday in response to a bout of particularly cold weather in the United States and Europe, as well as the weak dollar. U.S. light crude oil for March delivery jumped $2.80 to settle at $51.15 a barrel on the New York Mercantile Exchange, a gain of 5.8 percent.

In currency trading, the dollar tumbled Tuesday versus the yen and euro.

Consumer confidence dipped in February, the Conference Board reported about half an hour into the session. However, the read topped estimates. The confidence index fell to 104.0 from an upwardly revised 105.1 in January. Economists surveyed by Briefing.com thought it would fall to 103.

The revised read on gross domestic product growth due later in the week is expected to show an upward revision.

"The economy remains in a growth pattern, and normally the market would be responding favorably," said Michael Carty, principal at New Millennium Advisors. "But people are worried about inflation, the rise in energy prices and the weak dollar."

Among individual issues, shares of Home Depot (down $1.74 to $40.28, Research) fell more than 4 percent. The retailer reported higher fourth-quarter earnings that met forecasts but also issued a fiscal 2005 forecast that was unchanged, while some investors were hoping for a more bullish read.

Drugmakers Merck (down $1.40 to $31.21, Research) and Pfizer (down $0.21 to $26.59, Research) both fell, weighing on the Dow, after having jumped late Friday when an FDA advisory panel said Merck's painkiller Vioxx, which the drugmaker pulled due to safety concerns last September, was safe enough to return to market, albeit with a warning label and limited advertising.

The panel also determined that Pfizer's rival painkillers, Celebrex and Bextra, were safe enough to stay on the market.

But a number of analysts issued lukewarm notes on the developments Monday and Tuesday. Smith Barney, for example, said the regulatory developments don't limit the legal risks to the companies.

Novartis (up $1.56 to $50.46, Research) rose after saying Monday that it has bought Germany's Hexal and a controlling stake in U.S.-based Eon Labs. The deal, worth more than $8 billion, makes Novartis the largest generic drugmaker in the world. Shares of Eon (up $2.56 to $30.48, Research) rallied on the news.

Federated Department Stores (down $1.43 to $55.29, Research) fell after the company reported improved fourth-quarter earnings that beat estimates, but issued a first-quarter forecast that was short of analysts' expectations.

Separately, Federated is apparently making progress in talks regarding purchasing rival May Department Stores (up $0.17 to $33.62, Research), the New York Times reported.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by more than three to one as nearly 1.74 billion shares changed hands. On the Nasdaq, decliners topped advancers by eleven to five on volume of 2.06 billion shares.

Treasury prices edged lower, pushing the 10-year note yield up to 4.28 percent from 4.26 percent late Friday. Bond prices and yields move in opposite directions.

COMEX gold rallied $7.40 to settle at $435.80 an ounce.