"This has not been a good day for those who are worried about inflation," said Lehman Brothers economist Drew Matus."
The Dow Jones Industrial Average fell 55 points to 12,322, with 23 of its 30 components trading lower. The decline was fronted by United Technologies Corp. , its stock off 1.7%.
The S&P 500 dropped 5.82 points to 1,343.04, while the Nasdaq Composite declined 14.31 points to 2,318.23.
Helping set the market's bearish tone, Best Buy Co. lowered its 2008 forecast, with the Minneapolis-based electronics retailer citing soft customer traffic in January. The company's stock was recently off 3.6%. .
Best Buy's profit warning pressured retail stocks, with the S&P Retail Index down 1.1% in recent action.
Early commodities trading saw gold futures on the rise and platinum futures hitting another record high. .
Volume on the New York Stock Exchange topped 527 million, while 648 million shares traded on the Nasdaq. Declining stocks ran ahead of those gaining by more than 2 to 1 on both exchanges.
Ahead of the opening bell, the Labor Department said the cost of goods imported into the country climbed 1.7% in January, powered largely by rising energy prices. .
"The report suggests that the dollar depreciation is increasingly a worry with regard to the inflation outlook," said Matus.
The Federal Reserve of New York's Empire State Manufacturing Survey pointed to declining conditions this month, with the gauge falling nearly 21 points to stand at a negative 11.7, its first drop into the red since May 2005 and far worse than the fall that analysts predicted. .
Having less of an impact on the equities market was word from the Federal Reserve that U.S. industrial production climbed 1% in January, matching the expectations of economists surveyed by MarketWatch.
A survey released by the University of Michigan and Reuters had consumer sentiment darkening further in February, with an index falling to 69.6 mid-month from 78.4 in January. .
"Serious headwinds in the economy and the financial markets continue to take a toll on sentiment, although it's not yet translated to a collapse in consumer spending," said analysts at Action Economics.
In Europe, stocks turned sharply lower amid concern about the health of banks, along with the poor U.S. economic data. .
By Kate Gibson