A housing index released Tuesday by Standard & Poor's showed that prices of single-family U.S. homes fell in January compared to a year ago, in their worst showing since January 2004. Also, Lennar Corp., one of the nation's largest homebuilders, said its first-quarter profit plummeted 73 percent and warned that it probably won't meet its 2007 earnings guidance.

Wall Street has been nervous lately that a drop in housing values will further weaken subprime mortgage lenders, who make loans to people with poor credit, and make consumers feel less wealthy and rein in spending. Consumer spending makes up about two-thirds of U.S. economic activity.

The Conference Board said Tuesday that its March consumer confidence index fell to 107.2, the lowest level since November and a decline that was larger than Wall Street expected. The index was at 112.5 a month earlier, which had been its highest level in five-and-a-half years.

Analysts noted, however, that lower confidence doesn't necessarily translate to a drop in spending, especially with the labor market as stable as it is. Furthermore, the Dow Jones industrials rose every day last week and the recent pullback has erased only a small portion of that 370-point weekly gain — the largest since March 2003.

"While the market remains on the cautious side, there was a nice little bounce since mid-March. Investors are just looking over their shoulders, wondering if the problems in the housing market and subprime market are going to spill over," said Edward Yardeni, president of Yardeni Research Inc.

MAJOR INDEXES END DAY DOWN

The Dow fell 71.78, or 0.58 percent, to 12,397.29. Tuesday's selloff put the blue-chip index back into negative territory for the year.

Broader stock indicators also fell, but remain higher for 2007. The Standard & Poor's 500 index lost 8.89, or 0.62 percent, to 1,428.61, and the Nasdaq composite index declined 18.20, or 0.74 percent, to 2,437.43.

"The market is looking for some good news to sustain itself. Today didn't give that kind of news, and we were slightly overbought," said Richard E. Cripps, chief market strategist for Stifel Nicolaus, a broker based in St. Louis. "We're looking at markets that appear like they're more discriminating about risk."

Bonds were little changed Tuesday. Investors were weighing the decline in home prices against the specter of inflation, sparked by speeches by Fed officials Sandra Pianalto and Michael Moskow, who both touched on monetary-policy issues. The yield on the benchmark 10-year Treasury note was at 4.61 percent, the same as late Monday.

The dollar was lower against the euro and yen. Gold prices also slid.

Crude oil prices rose 2 cents to $62.93 a barrel on the New York Mercantile Exchange. Gasoline prices have risen sharply in recent weeks, giving many Americans another reason to keep a tight budget.

Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.38 billion shares.

The Russell 2000 index of smaller companies was down 6.58, or 0.81 percent, at 802.36.

Overseas, Japan's Nikkei stock average fell 0.90 percent. Britain's FTSE 100 edged up 0.01 percent, Germany's DAX index advanced 0.43 percent, and France's CAC-40 gained 0.19 percent.

HOUSING MARKET HURTING PROFITS

Lennar fell 4 cents to $44.50 after reporting that ongoing softness in the housing market will keep eating into profits. Other homebuilder stocks tumbled on Lennar's outlook and the S&P's home price data; D.R. Horton Inc., Toll Brothers, Pulte Homes and KB Home fell more than 1 percent, and Hovnanian Enterprises Inc. more than 3 percent.

As the cooling housing market dampens demand for homebuilding materials, many manufacturers have struggled. The Federal Bank of Richmond reported Tuesday that economic activity in the Richmond region registered a negative-10 in March — the same reading as in February, but still indicating contraction.

Transportation stocks also fell: CSX Corp. fell more than 2 percent, while Burlington Northern Sante Fe Corp. and Union Pacific Corp. fell more than 1 percent.

Though the weakness in housing and manufacturing is weighing on stocks now, some say it could eventually give the market a boost if investors believe that the Federal Reserve won't raise interest rates to curb inflation.

"There's enough softness in the economy that the Fed's not going to raise rates," Yardeni said. "It's a delicate balancing act here — investors don't mind softness in the economy as long as it's not a recession."

On Wednesday, investors will be listening to testimony by Fed chairman Ben Bernanke for clues about the economy's direction, and reading the Commerce Department's report on orders of durable goods for February.

Most companies aren't releasing much financial data in the coming weeks, as the first quarter wraps up on Friday and before the earnings rush begins in mid-April. But companies could issue profit warnings, to which Wall Street will pay close attention.

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