Wall Street skidded lower yesterday after an upswing in consumer prices intensified investors’ fears that the Federal Reserve will extend its nearly two-year string of interest rate increases. The Dow Jones industrial average suffered its biggest one day loss in three years, and the Nasdaq composite index turned negative for 2006.

Investors were spooked by a Labor Department report that its consumer price index swelled 0.6% in April, topping forecasts of 0.5%. But core CPI – without food and energy – also gained 0.3%, ahead of estimates and adding to worries that soaring oil prices have begun to lift prices elsewhere.

The inflation data dragged bonds lower and overshadowed solid earnings from Hewlett-Packard Company and cooling oil prices. Wall Street has been extremely anxious about economic news after the Fed last week said more rate hikes could be needed to battle inflationary pressures from record commodities prices.

“The CPI data really kicked the market in the teeth today,” the chief market strategist for Schwab’s CyberTrader, Ken Tower, said. “So the question now really is where can we find some support?”

As the Dow came within 80 points of its best-ever close of 11,722.98 last week, many analysts felt the market was overbought and would soon see a correction. But Mr. Tower said stocks are now oversold after several days of steep losses, suggesting that investors may start looking for positive signs to spur buying.

The Dow sank 214.28, or 1.88%, to 11,205.61, a one-month low. The Dow slid as much as 245.51 points earlier and logged its biggest single-session slide since falling 307 points on March 24, 2003.

Broader stock indicators also dropped sharply. The Standard & Poor’s 500 index lost 21.76, or 1.68%, to 1,270.32, its lowest since finishing at 1,262.86 on February 13; the Nasdaq fell 33.33, or 1.5%, to 2,195.80, showing a loss for the first time in 2006.

Declining issues led advancers by nearly 5 to 1 on the New York Stock Exchange, where preliminary consolidated volume of 2.95 billion shares topped the 2.44 billion that changed hands Tuesday.

The prospect of higher interest rates also hurt bonds, with the yield on the 10-year Treasury note surging to 5.16% from 5.1% late Tuesday. Last Friday, bond yields reached a four-year high of 5.19%.

While yesterday’s retreat reflected Wall Street’s ongoing nervousness about interest rates, investors may have gotten ahead of themselves before last week’s Fed meeting. Many traders were betting that the central bank would pause its two-year streak of rate hikes, and catapulted the major indexes to fresh multiyear highs.

The Fed boosted rates to 5% and left flexibility to pause its rate tightening. However, the Fed cautioned that soaring oil and gold prices pose a threat to inflation and could warrant higher interest rates to stifle demand and keep prices from escalating. The CPI report and Tuesday’s producer price index reading reinforced that warning.