Down day on Wall Street

NEW YORK (CNNMoney.com) -- Stocks tanked Friday, at the end of a tough week, after a report showing higher inflation raised worries that the Federal Reserve won't be able to keep cutting interest rates, even as the economy continues to struggle.

The Dow Jones industrial average (INDU) lost 1.3 percent, according to early tallies. The broader S&P 500 (INX) index lost 1.4 percent. The tech-fueled Nasdaq (COMPX) composite lost 1.2 percent. The Russell 2000 (RUT.X) small-cap index lost 2 percent.

Treasury prices fell, raising the corresponding yields. The dollar gained versus other major currencies. Oil and gold prices fell.

Here's a look at what was moving near the close of trade.

The Consumer Price Index (CPI) jumped 0.8 percent in November, the biggest monthly jump in more than two years. CPI topped forecasts and was up from the 0.3 percent reading in October.

It was the second day in a row that the government released reports showing higher inflationary pressures, following Wednesday's Producer Price Index (PPI).

The two reports raised worries that the Federal Reserve won't be able to keep cutting interest rates, as it did earlier this week, if pricing pressures are rising. Separately, the Fed also said this week that it is teaming with other central banks to make it easier for banks to borrow.

"We're still digesting the twin Fed moves and the PPI yesterday, and then the CPI today was disturbing," said Fred Dickson, chief market strategist at D.A. Davidson & Co. "I think it's caused investors to circle back to the Fed statement from Tuesday, which talked about inflation risks."

In its statement, the Fed said that the economic outlook had worsened from its last meeting in late October, but that some inflation risks remain.

The Fed has cut interest rates three times this fall as a means of loosening up the tight credit market and stopping the crisis from causing the economy to fall into a recession. Investors are hoping that the Fed will continue cutting rates next year.

Stocks slumped Tuesday after the central bank cut a key short-term interest rate by a quarter-percentage point, rather than a half-percentage point, as some had hoped, and also cut the bank discount rate by a quarter-point, rather than a half.

The decision was probably a good one for the economy longer term, said John Davidson, president and CEO at PartnerRe Asset Management, but it was not quite what the stock market wanted. News that the Fed was teaming up with other central banks helped sentiment, but the market remained choppy.

"This week the market expressed its disappointment with the Fed," Davidson said. "What reinforced it today was concern that the higher inflation is going to constrain what the Fed can do to spur the overall economy."

In corporate news, Citigroup said late Thursday that it would jump in to save seven structured investment vehicles (SIVs) that have been hit hard by the credit market crisis, taking the funds' $49 billion of assets onto its balance sheets. Citi (C, Fortune 500) shares rose Friday afternoon, erasing early losses.

But Citi was one of few Dow stocks gaining, with 26 out of 30 components falling. Decliners included IBM (IBM, Fortune 500), Intel (INTC, Fortune 500), Home Depot (HD, Fortune 500), DuPont (DD, Fortune 500) and Alcoa (AA, Fortune 500).

Black & Decker (BDK, Fortune 500) fell roughly 7.5 percent after the power tools maker lowered its fourth-quarter earnings forecast, citing slowing sales and product recalls.

Quicksilver (ZQK) slumped 11 percent after the outdoor clothing maker reported weaker fourth quarter earnings and forecast 2008 sales and earnings that are short of forecasts.

On the upside, Evergreen Solar (ESLR) was up 10 percent in active Nasdaq trade after UBS Investment Research upgraded the solar cell maker on strong growth potential.

Biotech BioMarin Pharmaceutical (BMRN) gained 22 percent after analysts said the company's new drug Kuvan, designed to treat a genetic disorder, will be more profitable than previously thought.

Market breadth was negative. On the New York Stock Exchange, losers topped winners three to one on volume of 1.26 billion shares. On the Nasdaq, decliners beat advancers by nearly three to one on volume of 1.94 billion shares.

In other news, the Federal Reserve said Friday that industrial production rose 0.3 percent last month after having fallen a sharp 0.7 percent in October. The increase was slightly more than expected.

Treasury prices dipped, raising the yield on the 10-year note to 4.24 percent from 4.20 percent late Thursday. Treasury prices and yields move in opposite directions.

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

U.S. light crude oil for January delivery fell 98 cents to settle at $91.27 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery fell $6 to settle at $798 an ounce, falling with other dollar-traded commodities.