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Stocks slide as new home sales fall

SIGNS of a weaker U.S. housing market and a gloomier outlook on the economy gave investors more reasons to dump stocks.

Major market indexes fell sharply yesterday after the Commerce Department said new home sales dropped for the first time in five months. Sales slid 3.6 percent in September to 402,000. Analysts had expected an increase.

The Dow Jones industrial average lost 119 points, or 1.2 percent. The Nasdaq composite index fell 2.7 percent, while the Russell 2000 index of smaller companies tumbled 3.5 percent. Many of the stocks in both indexes are considered more risky and so they suffered some of the biggest losses.

The retreat came as Goldman Sachs Group Inc. reduced its expectation for the U.S. economic output for the July-September period. Goldman Sachs predicts third-quarter gross domestic product rose at an annual rate of 2.7 percent, weaker than its earlier forecast of 3 percent.

The government's report on third-quarter GDP is due Thursday. Economists are looking for growth at an annual rate of 3.3 percent after a record four straight quarters of contraction.

The day's slide signaled that investors were reassessing their hopes for a recovery in the economy. Demand for safe-havens like Treasurys rose as did stocks of companies whose business is expected to fare better in a slump. Stocks of consumer staples companies like Procter & Gamble Co., which makes Tide detergent and Gillette razors, edged higher.

Analysts said the market's slide in the past week isn't surprising given the size of the advance in the last eight months and mixed economic readings.

"I'm not panicked at the moment," said Manny Weintraub, president of Integre Advisors in New York. "I don't think anyone expected a super robust recovery."

Stocks struggled Tuesday after a disappointing report on consumer confidence stirred worries about the strength of the coming holiday shopping period.

The Dow fell 119.48, or 1.2 percent, to 9,762.69.

The broader Standard & Poor's 500 index fell for the fourth straight day, sliding 20.78, or 2 percent, to 1,042.63. The Nasdaq fell 56.48, or 2.7 percent, to 2,059.61.

The Russell 2000 index of smaller companies fell 20.63, or 3.5 percent, to 566.36.

At the New York Stock Exchange 2,777 stocks rose, while 322 rose. Volume came to 1.7 billion shares compared with 1.4 billion Tuesday.

Overseas markets also tumbled.

Bill Schultz, chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania, said investors are looking at the latest data and worrying that the market has risen too much in anticipation of a recovery. The S&P 500 index is up 54.1 percent from a 12-year low in March, though it is down 5 percent since finishing at its highest level in more than a year at the start of last week.

The biggest slide since the market began rebounding eight months ago was a 7 percent slide from mid-June to mid-July.

"You're starting to see some trepidation about how we move forward," he said. Schultz said the market is likely to stall without improvements in how much revenue companies bring in and better readings on unemployment.

With about half the companies in the S&P 500 index having reported third-quarter results, revenue is down 7.5 percent from a year earlier, according Thomson Reuters. The unemployment rate stands at 9.8 percent and is expected to top 10 percent.

A strengthening dollar and falling commodities prices have weighed on stocks. The ICE Futures US dollar index rose for a fifth straight day yesterday, its longest gains since the start of July.

Bond prices rose as investors sought safety from a falling stock market. That sent yields lower. The yield on the benchmark 10-year Treasury note fell to 3.42 percent from 3.45 percent late Tuesday.

Crude oil fell US$2.09 to settle at US$77.46 per barrel on the New York Mercantile Exchange. Gold fell.

The drop in oil weighed on shares of energy companies. Oilfield services company Schlumberger Ltd. fell US$2.66, or 4.1 percent, to US$62.27.

Home builders fell after the sales data. Hovnanian Enterprises Inc. slid 41 cents, or 9.5 percent, to US$3.89. Toll Brothers Inc. fell 99 cents, or 5.5 percent, to US$16.95.

The drop in new home sales follows a report from the National Association of Realtors last week that sales of existing home posted the biggest increase in 26 years in September as buyers tried to get ahead of a tax credit set to expire.

Some corporate news also touched off worries. Goodyear Tire & Rubber Co. tumbled after it predicted operating income will fall in North America in the fourth quarter. The company said its third-quarter profit more than doubled as it cut costs and added products. The stock fell US$3.28, or 19.6 percent, to US$13.46.

In another sign of lingering troubles in the financial industry, GMAC Financial Services is in talks with the Treasury Department for a third bailout. The auto and mortgage lender has been among the financial firms hardest hit by rising loan defaults and troubled credit markets. The government already holds a 35 percent stake in GMAC after giving it US$12.5 billion in bailout money.


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