Stocks drop modestly in early trading

Stocks fell for a third straight day Friday as disappointing reports on manufacturing and home sales stirred doubts about the strength of the economy.

The Dow Jones industrials fell 42 points, for a three-day loss of almost 165 points.

Orders for durable goods fell unexpectedly last month, dropping 2.4% after rising 4.8% in July, the Commerce Department reported. Economists had estimated that orders were up 0.5% in August.

The government also reported that the number of new homes sold inched up to an annual rate of 429,000 last month, less than expected. The tepid advance followed four months of stronger gains that had raised hopes that the housing market was improving.

Technology shares fell Friday, weighing on the Nasdaq composite index, after quarterly results from BlackBerry maker Research in Motion fell short of expectations.

The Dow fell 42.25 points, or 0.4%, to 9,665.19. The broader Standard & Poor’s 500 index fell 6.40 points, or 0.6%, to 1,044.38, and the Nasdaq fell 16.69 points, or 0.8%, to 2,090.92.

Falling stocks outpaced those that rose by 6 to 5 on the New York Stock Exchange.

For the week, the Dow fell 1.6%, its biggest drop since July, while the S&P; 500 lost 2.2% and the Nasdaq slid 2%.

The losses for the week are modest considering how far stocks have rocketed since major indicators tumbled to 12-year lows on March 9. The S&P; 500 index, the benchmark for many mutual funds, is up 54% since then.

“We really have come a long way and the markets are taking a pause to reflect the fact that we were up 60%,” said Steven Goldman, chief market strategist at Weeden & Co. in Greenwich, Conn. “We still think things should stay relatively orderly in the pullback and we’re still likely to see further gains.”

Overseas, key stock indexes lost 0.4% in Germany, 0.5% in France and 2.6% in Japan. Shares in Britain rose 0.1%.