Stocks Slip on Economic Jitters

Investors retreated Tuesday, sending stocks moderately lower as existing-home sales slid and volatile oil prices intensified Wall Street’s summer malaise.

Raw-material producers such as Alcoa, whose sales rely on the strength of the economy, led the decline. Home builders including KB Home and Pulte Homes also slumped.

“There are a lot of headwinds that both the market and the economy face,” said Sean Clark, chief investment officer at Clark Capital Management in Philadelphia. “We came into this year thinking that this year was going to be more challenging than most investors and strategists thought. So far it has.”

The National Assn. of Realtors said sales of previously owned homes dropped 2.6% in July as mortgage rates crept up. Even with the decline, sales were the third-highest level on record.

The latest snapshot of housing activity suggested that the sizzling housing market might be cooling slightly. Investors have been closely watching home sales, worried that the housing boom is nearing its end. A contraction could hurt consumer spending because a raft of home equity loans have put cash in consumers’ pockets.

The Dow Jones industrial average fell 50.31 points, or 0.5%, to 10,519.58.

Broader stock indicators were also down. The Standard & Poor’s 500 index fell 4.14 points, or 0.3%, to 1,217.59, and the Nasdaq composite index fell 4.16 points, or 0.2%, to 2,137.25.

Still, in late August trading, it doesn’t take much to bring stocks down. No major economic reports are due this week, most companies’ second-quarter earnings are out, and many investors are on vacation, said Michael Sheldon, chief market strategist at Spencer Clarke.

“We’re not seeing a lot of conviction, either by buyers or sellers, so far this week,” he said.

The home sales decline also pushed Treasury debt yields to a one-month low. Housing has been a key engine of U.S. economic growth, so a hint of softening in the sector was enough to push more money into bonds, whose yields fall as their prices rise.

The yield on the benchmark 10-year note slipped to 4.18% from 4.21% on Monday.

Traders also worried as oil prices first rose, then fell. The volatility did not please equity investors, who are concerned that higher gasoline prices are curbing consumer spending. A barrel of light crude settled at $65.71, up 6 cents, on the New York Mercantile Exchange.

“We started the year at $42-a-barrel oil -- that was a concern, but we could get past it,” said David Sowerby, chief market analyst at Loomis, Sayles & Co. “When we crossed $60, I don’t think anyone could question what $60 is going to do to retail sales.”

In other market highlights:

* Aluminum producer Alcoa slid 68 cents to $27.68 for the worst performance in the Dow average. U.S. Steel retreated $1.42 to $40.31.

“You’ve got to start thinking about what the price of oil is going to do if it stays up here,” said Giles Knight, who helps manage $81 billion in assets at Gartmore Global Investments in West Conshohocken, Pa. “It has to slow the economy, which means your economy-sensitive stocks like cyclical materials are going to be hurt.”

* Home builders were down across the board, with KB Home shedding $1.25 to $70.96 and Pulte Homes subtracting 68 cents to $83.48. Lennar fell 79 cents to $58.93 and Toll Brothers sank 54 cents to $47.93.

* Pier 1 Imports, the top U.S. retailer of imported home furnishings, dropped 50 cents to $13.36 after forecasting a loss of up to 14 cents a share for the current quarter. Pier 1 earlier forecast a loss of as much as 7 cents to net income of as much as 3 cents. Cost Plus fell $1.13 to $22.46.

* Boston Scientific, the world’s largest maker of heart stents, slumped $1.23 to $25.92 for the steepest drop in the S&P; 500. The company shipped products that weren’t cleared for sale, including defective Taxus stents, federal regulators said.

* Citigroup slid 64 cents to $43.56. The company announced after trading Monday that Marjorie Magner had resigned as head of consumer banking after almost 20 years at the company.

* Amylin Pharmaceuticals, Eli Lilly and Alkermes rallied after a positive study of a long-acting release formulation of their Byetta injection in diabetes patients.

Amylin surged $6.07 to $28. Eli Lilly, which developed the drug with Amylin, rallied $1.01 to $53.72. Alkermes, whose Medisorb injectable drug-delivery technology is used in the treatment, advanced $1.84 to $17.67.

* Chinese search engine Baidu.com soared $9.31 to $82 after saying second-quarter profit jumped more than sevenfold as it sold more Web advertising.

* Japanese stocks continued their summer rally as solid economic data helped lift the benchmark Nikkei-225 index to a four-year high. The Nikkei rose 20.42 points, or 0.2%, to 12,472.93 after gaining 1.3% on Monday.

New data showed Japanese economic activity rose in June for the first time in two months, thanks to gains in industrial production and construction.