Stocks were sent reeling yesterday as news that US wage costs jumped at the fastest pace since 1991 fuelled fears that the inflation-fighting Federal Reserve may be ready to pull the interest-rate trigger again.

The Dow Jones industrial average ended down 180.78 points, or 1.65 per cent, at 10,791.29. In the broader market, declining issues outnumbered advances three-to-one on subdued volume of 766 million shares on the New York Stock Exchange. The technology-laden Nasdaq composite was down 65.83 points, or 2.4 per cent, at 2,640.01.

Wall Street's worries about inflation were also evident in the bond market, where the yield soared to 6.08 per cent - highest in a month - from Wednesday's close of 6.01 per cent and the bond's price fell 27/32.

Financial markets were rattled by the Employment Cost Index, a broad measure of costs associated with labour, including wages and benefit costs, which soared 1.1 per cent in the second quarter after a modest 0.4 rise in the first quarter. The increase was the largest since a 1.2 per cent leap in the June quarter of 1991.