Dow Loses 1.4% After Late Selloff

Stocks fell sharply Tuesday, dragged down by disappointing housing data and weakness in energy shares amid uncertainty about regulating offshore drilling.

The Dow Jones Industrial Average lost 148.89, or 1.4 percent, to close at 10,293.52.

Alcoa andCaterpillar were the biggest Dow decliners.

Just two stocks finished higher on the Dow — and barely — Johnson & Johnson and Merck .

Investors took a one-two punch of bad news this morning: Existing-home sales fell 2.2 percentin May from April, and Fitch Ratings slashed its rating on BNP Paribas, the largest bank in the euro zone by deposits.

The S&P 500 shed 1.6 percent and the Nasdaq fell 1.2 percent. The CBOE volatility index, widely considered the best gauge of fear in the market, was above 26 at the closing bell.

All 10 key S&P sectors were lower, led by energy as oil fell to $77.21 a barrel.

A federal judge reversed the six-month ban on deepwater drillingimposed by the Obama administration. The White House vowed to appeal.

US-traded shares of BP fell more than 2 percent after CEO Tony Hayward backed off from managing the oil spilland Bob Dudley, who has managed the company's problems in Russia, took the reins for managing the crisis.

Utilities and industrials were also weak. Gold ticked higher,settling at $1,239.90 an ounce.

Apple rose more than 1 percent after Deutsche Bank raised its price target on the stock, while Barclays Capital said a new carrier for Apple's iPhone "would extend and accelerate the iPhone 4 cycle." The iPhone 4 is expected to debut this week. Apple also said it sold 3 million iPad tablet computers in 80 days.

Shares of Verizon were unchanged after CEO Ivan Seidenberg said the telecommunications firm is ready to sell the iPhone, but the decision is up to Apple.

U.S. tech executives anticipate increases in global IT spending internationally and expect to see stronger revenue and profitahead for the industry next year, according to a recent survey by KPMG.

The survey also found that most of its respondents ranked China and India as the top countries to have the highest revenue growth and the highest employment growth during the next 12 months.

"The big firms are going to do very well,” Mark Stahlman of TMT Strategies told CNBC. “We’re going to have better than expected results from IBM , which is highly leveraged to infrastructure in the developing world. And Intel said they are going to double their top and bottom-line growth in the next few years."

Financial stocks ended lower as House and Senate Democrats are scrambling to complete their financial regulation overhaulbefore President Obama meets with world leaders at G20 meeting in Canada this weekend, ironing out differences on a range of complicated provisions from bank regulation to consumer protection.

JPMorgan shares shed 1.4 percent after the bank shook up its management.

And Goldman Sachs and Morgan Stanley lost more than 1 percent after William Blair analysts said the stocks are attractive but cut its second-quarter earnings forecast on both.

Treasurys gained after a strong auction of two-year notes. The $40 billion sale fetched a high yield of 0.738 percent and the bid-to-cover ratio was 3.45.

Auctions of 5-year and 7-year notes are expected in the next two days, respectively.

The dollar rose and the yuan slipped after Chinese state-owned bank snapped up dollars in what some analysts said may be another way for the Chinese central bank to keep the currency's appreciation in check. This came after weekend news that China planned to loosen its peg on the yuan to the dollar, a move that had initially given stocks a boost.

The Federal Reserve's Open Market Committee begins its two-day policy meeting Tuesday, issuing its latest pronouncement on interest rates and the economy Wednesday at around 2:15 pm New York time.

The Fed is expected to keep its key policy rate—the federal-funds target rate, at record low near zero to revitalize the economy, a decision the central bank has maintained since December 2008.

On the earnings front, Walgreen tumbled 6.5 percent after the drugstore chain reported a weaker-than-expected profit.

Rite Aid , Nike and Bed Bath & Beyond all finished lower ahead of the companies' earnings reports, due out on Wednesday.

Earthlink declined as the Internet provider filed a petition with the FCC to block the planned merger of Comcast and NBC Universal (NBC is the parent company of CNBC; both are owned by GE ). Earthlink says the deal would be anti-competitive.

AMR shares skidded after a report said the FAA had found cracks in three American Airline planes, which were made by Boeing .

Volume was light, with about 1.1 billion shares changing hands on the New York Stock Exchange. Decliners outpaced advancers, roughly 4 to 1.

This Week:
TUESDAY: Primary runoff elections; Earnings from Adobe after the bell
WEDNESDAY: Weekly mortgage apps; new home sales; weekly oil inventories; 5-yr note auction; FOMC interest rate decision; Galleon hearing; Earnings from Nike and Bed Bath & Beyond
THURSDAY: Durable goods orders; weekly jobless claims; 7-yr note auction; iPhone 4 on sale; Yahoo shareholders meeting; Earnings from Lennar, Oracle and Research In Motion
FRIDAY: Final read on Q1 GDP; corporate profits; consumer sentiment; XTO shareholders meeting on Exxon buyout; Earnings from KB Home

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