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Home sales fall troubles investors

NEW YORK (AP) - Signs of a weaker 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 nation's economic output for the July to 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 three percent.

The government's report on third-quarter GDP is due today. 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 is not 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 on Tuesday after a disappointing report on consumer confidence stirred worries about the strength of the coming holiday shopping period.

According to preliminary calculations, 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 two 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 on 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 seven percent slide from mid-June to mid-July.

"You're starting to see some trepidation about how we move forward," he said. Mr. 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 Wednesday, 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 on Tuesday.

Crude oil fell $2.09 to settle at $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 $2.66, or 4.1 percent, to $62.27.

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