Mounting worries about the health of the US economy helped spur the sell-off.

Federal Reserve Chairman Ben Bernanke told Congress that "numerous difficulties" are racking the economy of the world's largest oil consumer, and warned that rising prices for energy and food are heightening the risk of inflation accelerating.

At the same time, the Labor Department reported that wholesale inflation jumped by 1.8 percent last month, a larger-than-expected gain. Over the past year, wholesale prices have risen 9.2 percent, the most since 1981.

Bernanke's sobering comments and lingering concerns about the health of the financial sector helped drive stocks down sharply. In midmorning trading, the Dow Jones industrial average was down 180.51, or 1.63 percent, to 10,874.68. Broader indexes also sank.

The oil market appears to be paying more attention to a 200 point drop in the Dow Jones rather that the new highs for the euro," Ritterbusch said.

A five-day strike by Brazilian oil workers that began early Monday also seemed to have less effect than feared. The action cut production of government-run Petroleo Brasileiro SA, or Petrobras, by only about 4 percent by Monday evening. Petrobras produces about 1.6 million barrels of oil a day.

"We are not making a big case of the strike in Brazil as it is well defined in time, hence carries little un-priced risk. Furthermore the output loss estimates have been continuously revised down during the day," Olivier Jakob, an analyst at Petromatrix in Switzerland, said in a research note.

Soaring oil prices are taking a toll on drivers the world over, stoking fears that sustained high fuel costs could crimp global demand.

General Motors Corp., the leading US automaker, said it is assuming oil prices will hover between $130 to $150 a barrel next year. The company made the prediction as it laid out plans to slash jobs and truck production, suspend its dividend and borrow up to $3 billion as it grapples with an ailing US economy and record high fuel prices.

Retail gas prices in the US remained at a record near $4.11 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. Diesel rose six-tenths of a penny to its own high of $4.83 a gallon.