US blue chips closed lower yesterday after an inflation red flag prompted some heavy selling in the stock market following the Dow's best month on record. The Dow Jones Industrial Average fell 89.34, or 0.82 per cent, to close at 10,789.04. The index had fallen by as many 222 points before late trading made up ground. Over the month of April, the 30-stock average rose nearly 1,003 points.

Yesterday's selling tarnished a broad spectrum of sectors, especially market leaders, with declines in the stock prices of financial companies, pharmaceuticals and car manufacturers.

"We're seeing some air get let out of the bubble," said Dan Matthisson, head trader at D.E. Shaw Securities. "Investors have made so much money this year. With the Dow flirting with 11,000, there's some thinking that it's time to sell."

The Gross Domestic Product price index, an inflation indicator, jumped 1.4 per cent, its highest increase in nearly two years.