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

Stocks slid for a second day 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 Labour 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 Fed 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 non-stop 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 one 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 on Wednesday.

The Russell 2000 index of smaller companies fell 11.62, or 1.9 percent, to 601.75.

"Basically, after the FOMC meeting, investors took that as an excuse to take some profits," said Carmine Grigoli, chief US investment strategist at Mizuho Securities in New York, referring to the central bank's Federal Open Market Committee. And there wasn ot enough news yesterday to convince investors to do otherwise, he said.

Commodities prices extended their losses from Wednesday, while the dollar rose against other currencies. The dollar has weakened this year amid massive US government stimulus programs and low interest rates, which has been a boon to commodities and subsequently material and industrial stocks. Commodities are priced in US dollars, and a weak greenback makes them more appealing to foreign buyers.

Oil prices dropped $3.08 to settle at $65.89 a barrel on the New York Mercantile Exchange, adding to a nearly four percent drop on Wednesday sparked by a report from the Energy Information Administration that showed weak demand for energy. Gold and silver prices also fell sharply.

Bond prices mostly rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.39 percent from 3.43 percent late on Wednesday.

Stocks fell on Wednesday after the Fed kept interest rates unchanged and said the pace of economic activity has improved since August.

The Fed's assessment, while slightly more upbeat than its earlier comments, did not come as a surprise to investors, and a brief rally in US stocks that followed the statement quickly faded.

The Dow came within 82 points of the psychological benchmark of 10,000 but ended with a loss of 81 Wednesday.

Overseas, Britain's FTSE 100 lost 0.9 percent, while Germany's DAX index and France's CAC-40 both fell 1.5 percent. Japan's Nikkei stock average rose 1.7 percent.