WALL Street stocks prices dropped sharply as bonds tumbled, sending interest rates surging, after a Federal Reserve official's comments about the economy spooked the markets.

The Dow Jones fell again. On Tuesday, the blue chip barometer lost more than 53 points as investors grew increasingly sceptical about new gains in the market's record setting advance and started locking in profits.

Bonds dropped further after Federal Reserve Board governor, Ms Susan Phillips told a conference the economy was doing well but that there were some signs of wage inflation, analysts said.

Declining issues outnumbered advances by nine to five on the New York Stock Exchange, with 852 up, 1,541 down and 776 unchanged. The Nasdaq composite index fell 10.97 to 1,225.33, and the American Stock Exchange's market value index fell 3.50 to 607.27.