Stocks Waver as Home Sales Drop; Alcoa Skids

Stocks wobbled Tuesday after a report showed existing-home sales fell more than expected in May.

Pending sales of previously owned homes dropped 4.7 percent in May, the National Association of Realtors reported, following an upwardly revised 7.1-percent surge in April. Economists had expected a more modest 2.8 percent decrease.

"The overall decline in contract signings suggests we are not out of the woods by any means," said Lawrence Yun, chief economist at the real estate trade group.

In other economic news, wholesale inventories rose 0.8 percent in May, though a gauge of how long it would take to work through the current inventory fell to a record low amid strong sales of apparel and petroleum.

Offering the market some support earlier were comments by Fed Chairman Ben Bernanke that the central bank may extend its emergency-lending program for big Wall Street banks.

"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said in prepared remarks to a mortgage-lending forum in Arlington, Va.

Asian and European stocks declined, rattled by the prior day's trading in the U.S., when mortgage financiers Fannie Mae and Freddie Mac fell to their lowest level in more than 14 years amid concerns that they might be forced to raise billions more in capital.

Fannie and Freddie rebounded out of the gate as comments from the mortgage lenders' regulator helped assuage concerns but slipped into negative territory by midmorning.

Fannie and Freddie are adequately capitalized and continue to be active in the mortgage market, James Lockhart, director of the Office of Federal Housing Enterprise, which regulates the two enterprises, said in an interview with CNBC. A proposed accounting change that may affect trillions of dollars of mortgage bonds issued by Fannie and Freddie should not dictate their capital requirements, he said.

More gloom from the banking sector came as one of the biggest mortgage lenders, IndyMac , said after the bell on Monday it will eliminate 3,800 jobs and stop making most home loans after regulators concluded it was no longer "well capitalized."

Pepsi Bottling Group beat expectations as price increases in the U.S. and Canada more than offset a decline in volume.

The largest bottler of PepsiCo drinks said net income rose 7.4 percent to $174 million, or 78 cents per share, in its fiscal second quarter ended June 14, from $162 million, or 70 cents per share, a year earlier.

Analysts' average forecast was 75 cents per share for the bottler.

The earnings season officially starts with Dow component Alcoa reporting results after the bell.

Alcoa was the biggest drag on the Dow, falling more than 6 percent, as analysts expect flat aluminum prices and increasing energy and other input costs will take a toll on its results. Seven of the 15 analysts who cover Alcoa -- including two this morning -- have slashed their earnings estimates for Alcoa.

Oil again beat a retreat from its record highs, falling to nearly $139 as fears decreased that a hurricane in the Atlantic Ocean would cause significant damage in the Gulf of Mexico production areas, and as the price fell for refined products. Oil dropped nearly $4 Monday.

Microsoft said on Monday that a successful shareholder rebellion would encourage it to renew its bid to buy Yahoo's Internet search engine or possibly the entire company.

Also in mergers and acquisitions, investors will be looking to see if Merrill Lynch sells its stakes in BlackRock and Bloomberg to raise cash, and from the long-drawn InBev takeover offer for Anheuser-Busch .

The Calendar:

TUESDAY: Consumer credit; Fed's Bernanke, Lacker speak; Alcoa earnings
WEDNESDAY: Weekly mortgage applications; crude-inventories report
THURSDAY: Monthly retail sales; jobless claims; Fed's Yellon speaks; Marriott earnings; Chevron interim report
FRIDAY: Import/export prices; international trade; consumer sentiment; Treasury budget; GE earnings

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