NEW YORK (CNN/Money) - Stocks slumped Wednesday, with blue chips leading the way, as Treasury prices tumbled, boosting yields to multi-month highs on new inflation jitters.

The Dow Jones industrial average (down 107.00 to 10,805.62, Charts) and the Standard & Poor's 500 (down 12.42 to 1,207.01, Charts) index both lost around 1 percent. The Nasdaq composite (down 12.26 to 2,061.29, Charts) lost 0.6 percent.

Interest-rate sensitive sectors such as materials, financials and consumer products were hit hard, but the declines were broad-based, with 24 out of 30 Dow components falling.

Stocks briefly stabilized just before midday as oil prices pulled back in response to the morning's upbeat weekly oil inventory report. But that soon gave way to more stock selling as oil prices seesawed through the afternoon, briefly hovering just below an all-time trading high.

Bonds were hit hard again Tuesday, due in part to talk of a European Central Bank rate hike and partly to an upbeat read on the economy in the Fed's Beige Book, released in the afternoon.

"It's been a tough day overall," said Stephen Stanley, chief economist at RBS Greenwich Capital.

"The run up in oil prices this morning was a factor for stocks, and for bonds; there's been worry that the economy is getting stronger and rates are going to rise," he added. "The Beige Book certainty made it clear that the economy is getting stronger."

The dip in Treasury prices raised the 10-year note yield to 4.52 percent from 4.38 percent late Tuesday, a more than seven-month high. Bond prices and yields move in opposite directions.

In currency trading, the dollar fell versus the euro and yen.

Over the long term, inflation leads to higher interest rates, which can slow economic growth, cut into corporate profits and ultimately hit stock prices.

Worries about inflation have kept stocks in a tight range over the last few sessions, with investors taking a breather after pushing the Dow and S&P 500 higher for five out of the last six weeks. The Nasdaq has gained for four out of the lasts six weeks, but the advance has been smaller, with the tech-heavy index continuing to lag the other two.

"These last few days have been consolidation, off of a good employment report and almost six weeks of gains," said Barry Hyman, equity strategist at Ehrenkrantz King Nussbaum.

The next few trading days are very important in terms of the near-term trend, Hyman said, with key events including Thursday's economic news, Intel's mid-quarter update after the close Thursday and the January trade balance report due Friday.

The weekly jobless claims report, due before the open Thursday, is expected to show that 310,000 Americans filed new claims for unemployment last week, unchanged from a week earlier, according to Briefing.com estimates.

At 10:00 a.m. ET, the January read on wholesale inventories is due. Inventories likely rose 0.6 percent after rising 0.4 percent in December.

McDonald's (down $0.95 to $32.53, Research) fell 2.8 percent after Credit Suisse First Boston cut its rating to "neutral" from "outperform," citing worries about the fast-food company's European sales.

Other Dow losers included Caterpillar (down $2.19 to $96.81, Research), down 2.2 percent, Walt Disney (down $0.55 to $27.98, Research), down nearly 2 percent and AIG (down $1.14 to $65.60, Research), down 1.7 percent.

The late-in-the-session reversal in crude oil took down energy stocks.

Dow component Exxon Mobil (down $2.31 to $60.79, Research) fell 3.6 percent and was the Dow's biggest decliner.

The Philadelphia Oil Services (down $3.98 to $139.09, Research) index fell 2.8 percent.

Homebuilders slumped, sending the Dow Jones Home Construction (down $29.14 to $869.25, Research) index down 3.25 percent.

Heavy hitting Nasdaq stocks including Oracle (down $0.27 to $13.35, Research), Yahoo! (down $0.84 to $32.32, Research) and Apple Computer (down $1.18 to $39.35, Research) weighed on the index.

Chip gear maker Xilinx (down $0.19 to $31.27, Research) boosted its fourth-quarter sales guidance late Tuesday. Shares initially rose on the news, but retreated by the end of the session.

But the Nasdaq might have seen bigger losses if not for strength in selective issues.

Networkers rose, after Cisco Systems (up $0.41 to $18.48, Research) made some positive comments about its business at a Deutsche Bank conference, according to wire reports.

That helped boost the Goldman Sachs Networking (up 2.56 to 216.76, Charts) index by 1.2 percent.

Retek (up $2.04 to $10.63, Research) rallied nearly 24 percent in active Nasdaq trade after Oracle (down $0.27 to $13.35, Research) started a bidding war with German rival SAP (down $0.27 to $40.96, Research) for Retek, offering $500 million for the retail software provider.

In merger news, chemical group Crompton (up $1.85 to $15.31, Research) said it will buy smaller rival Great Lakes Chemical (up $6.42 to $33.60, Research) for $1.54 billion in stock.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by close to four to one on volume of 1.70 billion shares. On the Nasdaq, decliners beat advancers nearly two to one as 1.87 billion shares changed hands.

The day's lone economic report was the Federal Reserve "Beige Book" survey, released at around 2 p.m. ET. The snapshot of economic activity in 12 districts around the country offered fresh signs that the economy continued to move along at a moderate pace in late January and February. The Beige Book tends to play a role in the central bank's decisions on interest rates.

This week marks the fifth anniversary of the Nasdaq's all-time high in March 2000, near the end of the Internet bubble. The Nasdaq closed above 5,000 for the first time on March 9, 2000 and hit an all-time closing high of 5,048.62 on March 10 of that year.

Crude inventories rose 3.2 million barrels, according to a report released in mid-morning. That was more than expectations for a rise of 1.8 barrels. Distillates, used in heating oil, fell less than expected. Gasoline inventories fell more than expected.

U.S. light crude oil for April delivery rose 18 cents to settle at $54.77 a barrel on the New York Mercantile Exchange. Earlier, crude touched $55.65 a barrel, just two cents below the all-time trading high. Several even higher trades were cancelled, NYMEX said.

COMEX gold rose $1.80 to settle at $442.90 an ounce, bouncing with other dollar-traded commodities.

In global trade, Asian-Pacific stocks ended mostly higher, and European shares ended lower.