Blue-chip stocks tumbled on Wall Street yesterday after reports of strong retail sales and a soaring trade deficit reignited fears that interest rates will rise. The dollar continued to slip, adding to pressure on stocks.

At the close of trading on Wall Street, the Dow Jones was down 120.00 points at 10,910.33, a decline of 1.1 per cent.

Declining issues outnumbered advancers by a five-to-two margin on the New York Stock Exchange, with 2,158 down, 868 up and 498 unchanged. NYSE volume totalled 719.94 million shares compared with 652.22 million in the previous session.

Stocks were undercut by a Commerce Department report showing that retail sales surged 1.2 per cent in August, the biggest increase in six months. The increase was nearly twice what economists had anticipated, feeding worries that the Federal Reserve will raise interest rates for the third time this year.

Also yesterday, the Commerce Department said the US trade deficit had soared to a record $80.7 billion in the second quarter, news which prompted another slide in the dollar's value against the yen.