STOCKS tumbled yesterday dragging the Dow Jones industrial average towards its fourth biggest point drop ever, as inflation fears sent interest rates shooting to their highest level in nearly six months.

On Wall Street, the Dow dropped 160.48 points or 2.28 per cent to close at 6,878.89, led by a steep sell-off in Philip Morris, which plunged the equivalent of about 35 Dow points amid tobacco litigation worries.

Stocks came under pressure from the bond market, where interest rates jumped amid news of surprisingly heavy retail activity during January and February.

Declining issues outnumbered advancers by a 4-to-1 margin on the New York Stock Exchange, with 535 up, 2,099 down and 715 unchanged.

The Nasdaq composite index fell just 10.86 to 1,293.27, cushioned by a partial rebounds in some technology issues beaten down by recent profit-taking.