Dollar rally tugs stock market lower; homebuilders gain on strong new-home sales

NEW YORK — Stocks dropped Tuesday as investors weighed company news and the latest report on consumer prices.

Signs that the dollar could resume its recent surge apparently made investors nervous.

Homebuilders bucked the trend, gaining after sales of new homes in February climbed at their fastest pace in seven years.

The stock market has drifted lower for two straight days. The declines follow a rally in the market last week when Federal Reserve policy makers surprised investors by suggesting they were in no hurry to raise interest rates. Those low rates have helped power a six-year bull run for stocks.

“We're in something of a holding pattern as markets continue to digest all that's going on,” said Kristina Hooper, U.S. investment strategist at Allianz Global Investors.

The Standard & Poor's 500 index fell 12.92 points, or 0.6 percent, to 2,091.50 Tuesday. The Dow slipped 104.90 points, or 0.6 percent, to 18,011.14. The Nasdaq composite fell 16.25 points, or 0.3 percent, to 4,994.73.

Stocks were little changed throughout the morning before drifting lower in the afternoon.

The slump in stocks coincided with a rally in the dollar. The currency had started the day lower against the euro before erasing those losses.

The dollar index, which measures the strength of the currency against a basket of others such as the euro and Japanese yen, has climbed 15 percent in the last six months.

That rise has weighed on the earnings of companies such as Coca-Cola and Caterpillar that rely on overseas sales for a large portion of their earnings. S&P 500 companies start reporting results for the first quarter next month.

“The dollar overall is something that everyone is watching. Everyone is nervous about it, with earnings season coming up,” said JJ Kinahan, chief market strategist at TD Ameritrade.

A modest rebound in gas costs and broad gains in other categories lifted consumer prices for the first time in four months.

Utilities declined the most of the 10 industry sectors in the S&P 500. They are the worst-performing group in the index this year, having fallen 5.8 percent.

These stocks typically pay dividends that are high relative to their companies' share prices.

They were in demand last year, when government bond yields fell, and investors wanted them for the level of income they were no longer able to get from bonds.

Now, they are less popular because many investors think that the Fed will raise interest rates later this year.

That means that the yield on safer bonds should eventually rise, making utilities less attractive by comparison.

“Your real vulnerability is on the stock side,” said Jeff Lancaster, a principal of San Francisco-based Bingham, Osborn & Scarborough. “You can lose more money in a day in stocks than you can in a bad year on bonds.”

Among individual stocks, mining company Freeport-McMoRan Inc. said it would slash its quarterly dividend by 84 percent because of falling commodity prices.

The company's stock fell 15 cents, or 0.8 percent, to $19.18.

Home builders were among the gainers on Tuesday, after the Commerce Department said that new-home sales shot up 7.8 percent last month to a seasonally adjusted annual rate of 539,000, the strongest performance since February 2008.

PulteGroup rose 40 cents, or 2 percent, to $21.94. Beazer Homes climbed 36 cents, or 2 percent, to $17.57.