The Dow plunged 141.92, or 1.22 percent, to 11,500.73, its biggest single-day drop since January. On Wednesday, the Dow came within 75 points of its best-ever close of 11,722.98, reached on Jan. 14, 2000.
Broader stock indicators were lower. The Standard & Poor's 500 index slid 16.93, or 1.28 percent, to 1,305.92, and the Nasdaq composite index lost 48.04, or 2.07 percent, to 2,272.70.
The sharp decline reflected Wall Street's deep disappointment with the Federal Reserve's statement on Wednesday that more rate tightening could be needed to counter inflationary pressures from energy and metals. Investors were hoping for signals that rates have been raised enough to keep inflation in check.
But Thursday, worries about overseas supplies sent crude futures racing past $73 a barrel, and gold prices jumped to a fresh 25-year high. The commodities strength spooked a market looking for clarity on an economy teetering between growth and inflation.
"I think there are inflation concerns all over the marketplace right now," said Brian Williamson, equity trader at Boston Company Assetment Management. "Because of what the Fed was talking about yesterday, (higher commodities prices) put some anxiety into the marketplace."
Declining profit at Dow component American International Group Inc. and media conglomerate Viacom Inc. also stunned a market that has enjoyed yet another quarter of outstanding corporate earnings.