Slip in Home Sales Hurts Stocks

Stocks fell Thursday, led by the materials sector, after a weak reading of home sales deepened investors' worries about the broader U.S. economy.

The Dow Jones Industrial Average fell by 41.11 points, or 0.4%, to 9707.44. Alcoa sank by 4.5%, while Bank of America, Caterpillar, Dupont and General Electric declined by more than 2%.

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The market had received an early boost from better-than-expected data on first-time unemployment claims, but the gains quickly evaporated after the National Association of Realtors said that sales of existing homes fell 2.7% last month, snapping a four-month streak of rising sales.

The big-picture fears that roiled the market Thursday came in the wake of the latest policy announcement by the Federal Reserve's rate committee. The panel kept its key rate target steady and said it would phase out its purchases of $1.25 trillion in agency mortgage-backed securities and up to $200 billion in agency debt by the first quarter of 2010, rather than by the end of this year.

Stephen Wood, chief market strategist at Russell Investments, said that some market watchers had been expecting the Fed to more clearly articulate an exit strategy from its emergency supports for the financial system.

"That would have been a sign that the economy was a little bit stronger," which is what investors were hoping for, he said.

The S&P 500 fell 10.09 points, or 1%, to 1050.78, led by a 2.2% decline in its materials sector. Its energy category fell 1.4% as crude oil dropped 4.5% to the lowest leven in nine weeks. The technology-focused Nasdaq Composite Index sank 23.81 points, or 1.1%, to 2107.61, and the small-stock Russell 2000 fell 11.62 points, or 1.6% to 601.75.

Strategist Carmine Grigoli of Mizuho Securities USA is optimistic that stocks can resume their recent rally, which pushed indexes up nearly 50% from their March lows. He doesn't necessarily believe the latest bout of weakness will turn into a 10% decline that traditionally defines a market correction.

Moody's shares fell 4.4% after the House oversight panel postponed a hearing on credit-ratings agencies after the committee's chairman said new information about Moody's. McGraw-Hill, which owns Moody's rival Standard & Poor's, tumbled 6.5%. Both stocks have fallen nearly 30% this month.

Treasury prices gained after a strong auction of seven-year notes. Ten-year Treasurys rose 11/32 to yield 3.374%. Two-year Treasurys rose 1/32, yielding 0.941%. Yields move inversely to prices.

Gold prices also fell. Comex gold for September delivery sank by $15.50 a troy ounce, or 1.53% to $997.50, the largest one-day dollar and percentage slide for the yellow metal since July 8 and the lowest settlement since Sept. 10.