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Stocks fell sharply today as concerns about inflation were compounded by a dismal earnings outlook from Sears, Roebuck.

At 3 p.m., the Dow Jones industrial average was down 121.58 at 10,816.30 after having risen 108 points on Wednesday.

Broader stock indicators were also lower. The Standard & Poor's 500 index was down 20.90 at 1,310.17, and the Nasdaq composite index was down 11.00 at 2,739.80.

Stocks resumed an end-of-summer slump as a slew of bad news hit Wall Street. Above all, markets are under heavy pressure from continuing fears that the Federal Reserve has not yet completed its efforts to ward off inflation by imposing higher interest rates.

Today, those fears grew as Federal Reserve Gov. Edward Kelley told Market News International it would be premature to assume the Fed will wait until next year to raise rates again.

The Fed raised rates June 30 and Aug. 24, providing a temporary lift to the market both times as hopes grew that the central bank would make no further moves. But sporadic hints of inflationary pressures have kept the Fed on alert and investors on edge.

Today, the Labor Department said the growth of American workers' productivity slowed considerably in the spring, while labor costs jumped sharply. That bad news sent the yield on the 30-year Treasury bond climbing to 6.14 percent from 6.08 percent late Wednesday. Bonds are especially sensitive to inflation.

"The rising long-bond yield is deadly for stocks," said Larry Wachtel, market analyst with Prudential Securities. High yields can lure investors away from stocks as they seek out stable, guaranteed returns.

The market was also on guard in advance of the Labor Department's employment report, due out Friday, just before the long holiday weekend.

"Who's going to take a stand today when they know they could get clobbered tomorrow if that number is bad?" Wachtel said.

Today, Sears weighed most heavily on the Dow after saying its third-quarter net income will come in at 63 cents to 67 cents a share, well below analysts' forecast of 82 cents. Sears stock fell 4 7/1 6 to 32 3/4 .

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