Stocks slide as traders look for economic clues from Fed; homes sales drop more than forecast

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Stocks fall as investors await Fed decision

NEW YORK — Stocks fell Wednesday as investors remained skittish ahead of the Federal Reserve’s latest announcement on interest rates and the state of the economy.

The Dow Jones industrial average fell 50 points in afternoon trading, the sixth drop for stocks in the past eight days.

The Fed is expected to keep rates at historic lows. Traders will be looking closely at the Fed’s assessment of the economy later Wednesday for indications of when it will wind down more of its supports for the financial system.

“We’re getting a little bit closer to the point where the Fed may say something about their exit strategy and I think that’s probably got a lot of people on edge,” said David Joy, chief market strategist at RiverSource Investments.

Meanwhile, a 7.6 percent drop in sales of new homes in December brought concerns about how fast the economy is recovering.

The drop also followed hearings on Capitol Hill where Treasury Secretary Timothy Geithner answered questions about the government’s rescue of insurance giant American International Group Inc. last year. Geithner oversaw the bailout as head of the Federal Reserve Bank of New York. Former Treasury Secretary Henry Paulson also testified.

The hearing was the latest event in Washington to occupy investors. The U.S. market has been spooked by President Barack Obama’s push to restrict trading by major financial institutions as well as concerns that Fed chairman Ben Bernanke might not get confirmed in the Senate for a second term.

Paul Volcker, a former Fed chairman and the head of the President’s Economic Recovery Advisory Board, will testify before Congress next week about Obama’s plans to overhaul of banking regulations. Traders will also be glued to President Obama’s prime-time State of the Union speech for more clues about his plans to clamp down on the nation’s banks.

In midafternoon trading, the Dow Jones industrial average fell 49.50, or 0.5 percent, to 10,144.79. The Standard & Poor’s 500 index fell 5.24, or 0.5 percent, to 1,086.93, while the Nasdaq composite index fell 5.91, or 0.3 percent, to 2,197.82.

Meanwhile, a sharp drop in Caterpillar Inc. hurt the Dow industrials. Shares in the equipment maker plunged $4.19, or 7.5 percent, to $51.66 after it issued a cautious forecast.

Shares of Apple Inc. fell $2.72, or 1.3 percent, to $203.22 after the company unveiled a tablet-style computer that looks like a large iPhone.

Treasury prices rose as investors sought safe havens. A drop in bonds from Greece over that country’s mounting debt also created demand for U.S. debt, analysts said.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.60 percent from 3.63 percent late Tuesday.

The dollar rose against most other major currencies, while gold fell.

Crude oil fell $1.48 to $73.23 per barrel on the New York Mercantile Exchange.

Two stocks fell for every one that rose on the New York Stock Exchange, where volume came to 664.8 million shares.

The Russell 2000 index of smaller companies fell 1.39, or 0.2 percent, to 610.77.

Overseas markets fell for a second straight day on concerns about China’s move to curb bank lending. The country is trying to prevent speculative bubbles and rapid inflation as its economy continues to grow quickly. A slowdown in growth in China could stunt a global economic recovery.

Japan’s Nikkei stock average fell 0.7 percent and Hong Kong’s Hang Seng lost 0.4 percent.

Britain’s FTSE 100 fell 1.1 percent, Germany’s DAX index lost 0.5 percent, and France’s CAC-40 dropped 1.2 percent.