By Joe Wallace 

The Dow Jones Industrial Average extended a recent decline a day after its biggest drop since February, following fresh data that showed the spurt in consumer prices picked up speed in April.

The Dow opened 0.4% lower, while the S&P 500 slid 0.7% after posting its biggest two-decline since early March. The technology-heavy Nasdaq Composite Index skidded 1.3%.

The consumer-price index jumped 4.2% in April from a year before, the Labor Department said. Economists surveyed by The Wall Street Journal had expected a smaller rise of 3.6%. The index measures what consumers pay for goods and services such as clothes and vehicles. So-called core prices, excluding the volatile categories of food and energy, rose 3%.

Concerns that a burst of inflation may prove more intense and longer-lasting than investors had expected had sharpened focus on the data. Signs of mounting inflation have weighed on stocks this week. Rising commodity markets, supply-chain blockages and hiring difficulties have prompted some investors to expect a prolonged upswing in consumer prices.

That could lead the Federal Reserve to raise its target for short-term interest rates sooner than it has signaled, potentially weighing on stocks and other assets that have benefited from over a year of near-zero borrowing costs. For their part, several Fed officials have said the economy still needs support from low rates.

Bond yields rose in response to the inflation data. The yield on 10-year U.S. Treasury notes ticked up n to 1.671%, from 1.623% Tuesday. Yields, which fall when bond prices rise, had climbed for three consecutive trading sessions but remain below their March high of 1.749%.

"Markets are highly sensitive to headline and core levels of inflation at this moment in time," Edward Park, chief investment officer at U.K. investment firm Brooks Macdonald, said before the inflation data was made public. "There is the concern that the Federal Reserve will lose control if there are signs that the inflation backdrop does become more prolonged."

Many bond and stock investors think the Fed will maintain its loose monetary policy, "but at the same time, that conviction gets tested by things like [last week's] jobs report," Mr. Park added. "Markets feel confused and conflicted."

Other factors have also knocked down stocks in recent days, including signs that the U.S. economy -- while still expanding at a fast clip -- has passed its peak rate of growth, said Anna Stupnytska, global economist at Fidelity International. The market was also vulnerable after a steep run-up in prices at the start of the year.

"The main worry is that...because of inflation moving higher, central banks will start tightening," Ms. Stupnytska said. She thinks U.S. inflation will subside next year and that the Fed won't hike rates until well into 2023. Still, multiasset funds at Fidelity International have bought Treasury inflation-protected securities, gold and industrial metals as a hedge against inflation.

In commodity markets, Brent-crude futures, the benchmark in energy markets, rose 1.1% to $69.34 a barrel. The glut of crude and oil products that built up near the start of the pandemic has mostly cleared in members of the Organization for Economic Cooperation and Development, the International Energy Agency said in a monthly report.

Iron-ore futures hit fresh highs in New York, jumping 5% to $226.01 a metric ton. Prices for the steel ingredient have shot up due to strong demand from China.

Overseas markets were mixed. Gains for telecom stocks helped to push the Stoxx Europe 600 up 0.2% after the index on Tuesday posted its biggest fall since December.

Shares of Commerzbank jumped over 7% after the German lender boosted its revenue outlook for the year and reported an unexpected profit for the first quarter. ABN Amro Bank dropped more than 8% after the Dutch bank posted a loss for the first quarter, in part due to a settlement with prosecutors over a probe into money-laundering.

In Asian markets, Taiwan's Taiex tumbled 4.1% after the government tightened coronavirus restrictions. Japan's Nikkei 225 fell 1.6% by the close and China's Shanghai Composite rose 0.6%.

Write to Joe Wallace at Joe.Wallace@wsj.com

(END) Dow Jones Newswires

May 12, 2021 09:46 ET (13:46 GMT)

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