Dow Sinks 71 on Price Report : Economy: Stocks take worst drubbing since October after Tokyo, London set stage.

Stock prices took their sharpest drop since the October “mini-crash” today as new inflation worries and market declines in Tokyo and London set a gloomy mood for Wall Street.

The Labor Department reported that the producer price index of finished goods rose 0.7% in December, exceeding advance estimates for that measure of inflationary pressures.

The index finished 1989 with an increase of 4.8%, its biggest in eight years.

Analysts said the news dealt an abrupt setback to hopes on Wall Street for any further moves soon by the Federal Reserve to relax its credit policy and encourage lower interest rates.

Stock traders also were absorbing word of overnight declines in the Japanese and British markets, where interest-rate and inflation worries have also unsettled investors lately.

Tightening credit conditions overseas have raised fears that the U.S. Treasury will have to pay higher interest rates to attract buyers for its securities.

The Dow Jones average of 30 industrials tumbled 71.46 points to 2,689.21, for its largest loss since it plunged 190.58 last Oct. 13.

Declining issues swamped advances by about 7 to 1 on the New York Stock Exchange, with 203 up, 1,486 down and 300 unchanged.

Big Board volume totaled 183.88 million shares, against 154.39 million in the previous session.

The NYSE’s composite index fell 4.46 to 188.32.

Soaring energy costs pushed wholesale prices up 0.7% in December, bringing inflation in 1989 to an eight-year high of 4.8%, the government said.

The sharp, seasonally adjusted monthly rise helped spook the financial markets, which read it as a sign the Federal Reserve Board would not lower interest rates anytime soon.

Meanwhile, in a separate report, the Commerce Department said retail sales in December rose a lackluster, seasonally adjusted 0.2%. For the year, sales rose only 5%, a seven-year low and barely ahead of the inflation rate.

“We’re starting the year with the worst of both possible worlds: inflation accelerating and growth slowing,” said economist David Jones of Aubrey G. Lanston & Co. Inc., a government securities dealer in New York.

The 1989 gain in the Labor Department’s Producer Price Index for finished goods, one stop short of retail, topped the previous year’s rate of 4% and was more than double the 1987 pace of 2.2%.

It marked the third consecutive acceleration of wholesale inflation and was the steepest rise since the index shot up 7.1% in 1981.

The primary factor driving prices higher, both in December and for all of 1989, was energy, which climbed 1.4% for the month and 9.6% for the entire year.

The deep freeze that gripped much of the nation last month helped boost fuel oil prices 7.1% and natural gas costs 1.6%. Gasoline prices were unchanged after falling 7.7% in November.

For the year, fuel oil climbed 33.9%, the biggest jump since 1979. Gasoline rose 9.2% and natural gas, 3.5%.

Analysts foresee energy prices increasing substantially again this month, and perhaps in February, but then subsiding with warmer temperatures in the spring.