NEW YORK (AP) -- Heightened fears of inflation prompted investors to sell off stocks Tuesday as a key price index climbed to an 11-year high and an improving manufacturing sector raised the likelihood of another interest rate hike by the Federal Reserve. In midmorning trading, the Dow Jones industrial average fell 75.48, or 0.67 percent, to 11,110.20.

Broader stock indicators also fell. The Standard & Poor's 500 index lost 10,43, or 0.82 percent, to 1,266.23, and the Nasdaq composite index dropped 30.65, or 1.47 percent, to 2,060.82.

While inflation-adjusted consumer spending rose a sluggish 0.2 percent in June, the Commerce Department also reported that consumer prices are up 2.4 percent year over year, the highest rate of inflation since April 1995.

A strong rise in the Institute for Supply Management's manufacturing index deepened investors' interest rate worries, as a strong economy would make it easier for the Fed to raise rates without cutting off growth. The index rose to 54.7 in July, far better than the 53 reading economists had expected.

The Fed meets next Tuesday to gauge whether more interest rate hikes are needed to clamp down on inflation. The Commerce and ISM reports could push policy makers toward another quarter percentage point increase, which would put the benchmark rate at 5.5 percent. That would make capital more expensive for corporations -- and hurt corporate earnings and share prices.

Bonds slumped alongside stocks, with the yield on the benchmark 10-year Treasury note rising to 5.01 percent from 4.98 percent late Monday. The dollar was mixed against other major currencies, while gold prices rose.

Rising crude oil and natural gas futures added to Wall Street's worries, since the Fed has signaled that high energy prices could further feed inflation. Crude prices rose 40 cents to $74.80 per barrel due to multiple crises in the Middle East, while natural gas futures built on Monday's 14 percent surge based on higher U.S. electrical demand in a nationwide heat wave.