After a positive initial reaction to figures showing that the rise in "core" prices at the factory gate last month was lower than expected, the Dow Jones Industrial Average fell 70 points to 5,415 by mid-morning before regaining some of the lost ground.
The decline hit shares in London, where the FT-SE 100 index ended more than 23 points down at 3,744.2.
The New York Stock Exchange imposed its automatic curbs on trading - for the 39th time this year - after a morning bout of computer selling. This was triggered by a fall in stock futures as investors concluded that low inflation last month did not mean it would stay low.
Concern centred on commodity prices. The price of crude oil is at a four and a half year high, with the benchmark Brent crude for May delivery up 54 cents a barrel at $22.57 by late yesterday afternoon.
Higher grain prices as a result of dry weather have also helped take the Federal Reserve's favoured commodity price index, from the Commodity Research Bureau, to its highest level for eight years.
Inflation at the factory gate in the US remained subdued last month apart from commodity-driven increases in energy and food costs.
The producer price index increased by 0.5 per cent to a level 2.4 per cent higher than a year earlier.
The core increase, excluding food and energy, was only 0.1 per cent in the month and 1.9 per cent in the year to March. Energy prices jumped 2.4 per cent and food prices rose 0.6 per cent in March.
Financial markets remained concerned about the risk of higher inflation in future. Figures for US retail sales and consumer prices due to be released today will keep Wall Street nerves on edge.
Dan Seto, an economist at securities firm Nikko in New York, said: ``The price figures reflect past economic conditions. There are some troubling inflation pressures." However, most analysts do not expect the Federal Reserve to raise interest rates in a hurry.