Drop in home sales, tumbling oil weigh on stocks

NEW YORK -- A surprise drop in home sales and another slide in oil prices pushed investors to sell stocks Thursday.

Stocks slid after the National Association of Realtors said existing home sales fell 2.7 percent in August compared with a 7.2 percent rise in July. Economists had been expecting a fifth straight increase.

The report overshadowed news from the Labor Department that the number of newly laid off workers seeking unemployment benefits fell for a third week in a row. Initial claims for unemployment insurance fell by 21,000 last week to 530,000, slightly better than economists expected.

Meanwhile, a stronger dollar pressed commodity prices lower. That in turn hurt stocks of energy and materials companies.

The drop in stocks came a day after the Federal Reserve's more upbeat assessment of the economy failed to bring sustained gains to the market. Investors still believe the economy is healing, but concerns remain about how strong the recovery will be. There are also worries about what will happen once the government scales back its various economic stimulus efforts.

The Fed said on Wednesday it would slow its purchases of mortgage-backed securities to extend the program into early next year. A first-time home buyer's credit is set to expire in November.

"We know what the data looked like with the economy on life support," said Stephen Wood, chief market strategist at Russell Investments. "What the market is beginning to price is what will the data look like when the Federal Reserve starts withdrawing that life support and that is not nearly as clear."

Investors are also questioning how much farther the stock market can climb. It's been nearly seven months since stocks hit 12-year lows in early March, and market indicators have climbed more than 50 percent since then with little pause. Many market watchers have been expecting a pullback, and see nonstop rises in stock prices as a sign of indiscriminate buying and a cause for worry.

According to preliminary calculations, the Dow Jones industrials fell 41.11, or 0.4 percent, to 9,707.44. The Standard & Poor's 500 index fell 10.09, or 1.0 percent, to 1,050.78, and the Nasdaq composite index fell 23.81, or 1.1 percent, to 2,107.61.

Three stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.4 billion shares, compared with 1.3 billion Wednesday.