It is always a mistake to read much significance in one day's market movement, but the sharp decline in stocks today may be an indication that investors have woken up to the fact that sky-high oil prices are a real problem for the U.S. economy.

The tipping point was oil climbing above $129 a barrel, heading toward $130. With the data on producer prices showing other costs rising, the prospects of inflation accelerating and the economy contracting are hard to wish away.

Stocks have been strong over the last two months, even with oil prices over $120 a barrel. The benchmark Standard & Poor's 500 Index is up nearly 7 percent since the beginning of March.

But that rally has had a hollow ring to it. It has come amid signs that higher gasoline and fuel costs are having an impact on consumer spending and indications that inflation is building. At the same time, financial institutions are still digging themselves out from the collapse of the subprime mortgage market.

Some of the main market movers have been energy stocks. Bloomberg News reported on Monday that when the earnings of the big oil producers over the last two quarters are excluded, profits of companies in the S&P 500 fell 26 percent in the first quarter and 30 percent in the second.

On top of a 34 percent rise in crude oil prices, there is growing concern about other costs rising. Earlier today, the Labor Department reported that prices paid to producers and other manufacturers rose 0.2 percent in April, less than expected. But when energy and food costs are stripped out, producer prices rose 0.4 percent, 3 percent year over year, the fastest pace since 1991.

"That's not a good indication," Peter Cardillo, chief market economist with Avalon Partners, said of the Producer Price Index, according to TheStreet.com. "It says that higher oil prices are having an effect across the board, and it's being passed onto the consumers to a certain degree."

And the energy component in the Producer Price Index can be deceiving because of the way the government accounts for seasonal changes. If gasoline rises slower than usual in April, that be adjusted into a decline even when drivers are seeing higher prices at the pump.

Investors were also shaken by indications that the credit crisis has not yet bottomed out. The insurance giant American International Group said it would seek to raise another $7 billion in capital, while the closely followed analyst Meredith Whitney of Oppenheimer said that the credit crisis will "extend well into 2009 and perhaps beyond."

A.I.G. shares fell to levels not seen since 1998.

The selling in financial shares came even as one indication of lending confidence, the TED spread, improved.  

The TED spread, the difference between the yield on the three-month Treasury bill and the London interbank offered rate, or Libor, shrank to its lowest since August, when the credit crisis fully erupted.

The major market indexes ended off their lows of the day. The S&P 500 closed down nearly 1 percent, its biggest slump in two weeks. The Dow Jones industrial average fell 1.5 percent, its sharpest drop in five weeks.