Hope for year-end rally limits losses

NEW YORK » A negative sales forecast from home builder Toll Brothers Inc. yesterday cast doubt on the health of the housing market and sent stocks falling after four sessions of gains.

A softening in the real estate market, which had helped fuel economic growth for more than two years, could mean weaker consumer spending and a slowdown in the economy. Toll Brothers' lower sales projections fed those fears, while disappointing forecasts from auto parts maker Visteon Corp. dragged down the auto sector as well.

Despite Wall Street's two-week upswing, the news illustrated the problems that still face the economy and the stock market. Yet even amid the market's lingering worries, investors' expectations of a year-end rally kept the day's losses limited.

"With the Dow and Nasdaq having moved up the way they have, it's only normal to see a bit of a pullback from time to time," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "But you still have a lot of seasonal factors to come into play. November through January has historically been great for stocks, and I think it'll be almost a self-fulfilling prophecy as investors start trickling back into the market."

The Dow Jones industrial average fell 46.51, or 0.44 percent, to 10,539.72. The Dow had gained 179.46 over the previous four sessions.

Broader stock indicators also fell. The Standard & Poor's 500 index dropped 4.22, or 0.35 percent, to 1,218.59, and the Nasdaq composite index lost 6.17, or 0.28 percent, to 2,172.07.

The bond market rallied, with the yield on the 10-year Treasury note falling to 4.55 percent from 4.63 percent late Monday. The dollar made gains against other major currencies, while gold prices moved higher in Europe as the rioting in France prompted investors to buy.

Toll Brothers said softening demand and moderating house prices would result in fewer new home sales next year and would likely cut into full-year profits. The company also blamed a tougher regulatory environment and waning consumer confidence for the lower projections. Investors nervous about the health of the housing market punished Toll shares, sending them plummeting $5.50, or 14 percent, to $33.91.

"That shouldn't have been a surprise to anyone, because all the background was in place for that to happen what with rising interest rates and consumer spending where it's at," said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers.