Glenn Carell
Richard Drew  /  AP
In this Nov. 11, 2010 photo, specialist Glenn Carell, right, works at his post on the floor of the New York Stock Exchange. (AP Photo/Richard Drew)
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updated 11/12/2010 11:18:27 AM ET 2010-11-12T16:18:27

Stocks and commodities prices fell sharply Friday as investors worried that China might try to slow down its surging economy.

The Dow Jones industrial average dropped nearly 95 points in late afternoon trading, led by sharp losses in energy and materials stocks.

Concerns that China might have to raise interest rates in order to fight inflation brought worries that demand from China could wane for a wide variety commodities including crude oil, metals and grains.

Talk of an interest-rate hike in China has led to "mass liquidation" in the commodities market, said John Sanow, an analyst with Telvent DTN in Omaha, Neb. Losses among commodities accelerated throughout the day. Benchmark crude is down 3 percent. Silver prices fell more than 5 percent and soybeans are down nearly 5 percent.

Oil companies like Chevron Corp. and ExxonMobil Corp. fell more than 1 percent. Freeport-McMoRan Copper & Gold Inc. fell about 3 percent. Intel Corp. was among the few gainers, rising more than 1 percent after the chip maker said it will raise its dividend 15 percent.

The Dow fell 98.50, or 0.9 to 11,184.60 in late afternoon trading.

The Standard & Poor's 500 index fell 15.57, or 1.28 percent, to 1,197.97, while the Nasdaq composite index fell 35.62, or 1.38 percent, to 2,420.20.

The losses in the U.S. follow steep drops overnight in major Chinese indexes as traders fear China might be forced to raise interest rates to combat mounting inflation. The Chinese government said Thursday that the pace of inflation hit a more than two-year high in October.

The Shanghai composite index plummeted 5.2 percent Friday, while Hong Kong's Hang Seng tumbled 1.9 percent.

Brett D'Arcy, chief investment officer at CBIZ Wealth Management Group, said investors turned their attention to China now that the news flow from the U.S. is winding down. Last week was a heavy one for U.S. news between the midterm elections and the Federal Reserve's announcement of an economic stimulus plan.

Cooling China's economy could have an impact worldwide because the country's robust economy has helped offset sluggish growth in places like the U.S. Many companies have credited international sales, particularly in China, as a reason earnings have been strong.

The speculation about a rate hike in China came as little headway was made on a plan to strengthen global growth. Leaders from the Group of 20, which includes large developed and emerging economies, failed to agree on policies about trade and currency manipulation that could stoke protectionism and a trade war.

The group refused to endorse a plan the U.S. presented to force China to allow the value of its currency to rise. The U.S. argues that China is keeping the value of its currency artificially low because a weak currency makes exports cheaper and more attractive globally. That, in turn, gives China an unfair advantage in global markets, helping its economy at the expense of others.

The dollar resumed its slide against other major currencies. It had rallied in recent days, particularly against the euro as Ireland's debt crunch renewed worries about the European financial system. A fiscal crisis in Greece this spring helped bring down stocks around the world, and investors are hoping Ireland can right its own finances without having to seek a bailout as Greece did.

Bond prices fell, sending interest rates higher. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.76 percent from 2.65 percent late Wednesday. The bond market was closed Thursday for Veterans' Day.

Walt Disney Co. shares jumped nearly 5 percent. The gain came a day after shares dropped after its quarterly results, which showed an unexpected drop in earnings, were leaked early.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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