NEW YORK — Investors concerned about slowing economic growth sent stocks sharply lower yesterday after the Federal Reserve said it would continue raising interest rates despite worries about the economic impact of Hurricane Katrina.

The Fed — concerned about high oil prices and their potential to spark inflation — raised the benchmark rate by a quarter percentage point to 3.75 percent. The Fed said destruction along the Gulf Coast, while hampering economic activity short-term and pressuring the stock market, did not pose "a more persistent threat" to the economy.

Instead, the Fed said it would stick to its policy of gradual rate hikes. While that may keep inflation in check, the move would make it more expensive to borrow money — and could hinder economic expansion.

The Dow Jones industrial average fell 76.11, or 0.72 percent, to 10,481.52. The Standard & Poor's 500 index lost 9.68, or 0.79 percent, to 1,221.34, and the Nasdaq composite index dropped 13.93, or 0.65 percent, to 2,131.33.

Bonds held steady after the Fed decision, with the yield on the 10-year Treasury note unchanged at 4.25 percent from late Monday.

Oil prices fell during the session, with a barrel of light crude settling at $66.23, down $1.16, on the New York Mercantile Exchange after rising more than $4 on Monday.

Declining issues outnumbered advancers by about 11 to 5 on the New York Stock Exchange, where consolidated volume came to 2.38 billion shares, compared with 2.1 billion traded Monday. The Russell 2000 index of smaller companies fell 6.39, or 0.96 percent, to 660.63.