Stocks slip on housing woes

NEW YORK (CNNMoney.com) -- Stocks slumped Monday afternoon, as signs of further weakness in the housing market gave investors a reason to retreat after last week's rally.

The Dow Jones industrial average (down 54.95 to 13,323.92, Charts) lost 0.4 percent two and a half hours into the session, while the broader S&P 500 (down 10.87 to 1,468.50, Charts) index lost around 0.8 percent. The tech-fueled Nasdaq Composite (down 18.82 to 2,557.87, Charts) lost 0.7 percent. The Russell 2000 (down 10.03 to 788.90, Charts) small-cap index fell 1.2 percent.

Stocks opened lower and fell anew after a report showed that existing home sales dropped in July, and the number of homes on the market jumped to a 16-year high.

The report countered last Friday's new home sales reading, which showed some recovery for the sector.

"People are paying very close attention to the housing market and we're going to keep seeing this back and forth with the data," said Russell Lundeberg, Jr., chief investment officer at Barrett Capital Management.

On the upside, underlying economic conditions still look pretty robust outside the housing market, Lundeberg said. Meanwhile, corporate earnings remain decent.

Yet, "I think people are still hesitant to believe that the worst is over," he added.

Stocks have had a tough summer as worries about the tightening of the credit markets and the fallout in the housing market caused investors to dump stocks in favor of Treasury bonds and other safe-haven investments. However, last week brought a brief reprieve.

Stocks rallied last week, with the Dow and S&P 500 adding around 2.3 percent, while the Nasdaq gained almost 2.9 percent as investors welcomed signs that the economy is holding up outside of housing.

Reassurance was also provided by the Federal Reserve and central banks around the world, which have infused billions into their banking systems to keep money flowing.

Investors are now hoping that the Federal Reserve will cut a key short-term interest rate -- that effects consumer loans -- at its policy meeting next month. The central bank already cut the discount rate, which effects bank loans.

But after last week's big run, stock investors were more cautious Monday, particularly amid continued signs that the recent buyout boom could be waning.

To that effect, Home Depot (up $0.57 to $35.25, Charts, Fortune 500), a Dow component, has reportedly slashed the price for the sale of its supply business to private equity firms to $8.5 billion from $10.3 billion. The shortfall reflects the credit market jitters that have weighed on investors this summer.

Yet, Gateway (up $0.59 to $1.80, Charts) stock rallied 50 percent after Taiwan's Acer agreed to buy the computer maker for $710 million.

Monday's big stock decliners were in the housing, financial and commodities sectors.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by almost three to one on volume of 410 million shares. On the Nasdaq, decliners topped advancers two to one as 510 billion shares changed hands.

Treasury prices rose, lowering the yield on the 10-year note to 4.59 percent from 4.61 percent late Friday. Bond prices and yields move in opposite directions.

In currency trading, the dollar was little changed versus the euro and the yen.

U.S. light crude oil for October delivery fell 41 cents to $70.68 a barrel on the New York Mercantile Exchange.

COMEX gold fell 70 cents to $676.80 an ounce.