Stocks sink after mixed news on economy

NEW YORK -- More signs of a weak economy gave investors a reason to sell stocks for a second day.

Stocks extended their pullback Tuesday after news of a seventh straight monthly drop in industrial production overshadowed better-than-expected reports on home construction, building permits and inflation.

The Dow Jones industrial average lost 107 points, bringing their two-day drop to nearly 300 points. Investors are nervous that a three-month surge in stocks, based on optimism about a recovering economy, might have been premature.

But analysts weren't surprised that investors were having second thoughts.

"It's unreasonable to think that the market is going to go straight up and never turn back," said Eric Ross, director of research at Canaccord Adams.

Analysts say investors need more clear evidence of growth to restart the market's rally, which has stalled as investors grow worried that a weaker dollar, higher commodities prices and rising interest rates will hamper the economy's recovery. The Standard & Poor's 500 index is still up 34.8% from the 12-year lows it hit in March.

"You've got to continue to have a constant flow of good news to push things higher," said Randy Frederick, director of trading at Charles Schwab. "And we just don't have that."

The Dow Jones industrial average fell 107.46, or 1.3%, to 8,504.67. The Standard & Poor's 500 index fell 11.75, or 1.3%, to 911.97, while the Nasdaq composite index fell 20.20, or 1.1%, to 1,796.18.

On Monday, the Dow tumbled 187 points, or 2.1%, putting it back into the red for 2009. Last week, the Dow was up on the year for the first time since January. A stronger dollar sent commodities prices tumbling Monday and that put pressure on energy and material stocks.

But the dollar resumed its three-month fall against other major currencies Tuesday, pushing prices for commodities higher.

Analysts contend a pause in the rally is necessary for stocks to move higher. Market watchers tend to be alarmed when the market moves up in an unbroken line, saying it suggests indiscriminate buying that could easily dissipate once the market's mood changes.