NEW YORK — Wall Street abruptly ended an earnings- driven rally and closed sharply lower Thursday after a steeper-than-expected decline in home resales and worries about the financial sector chilled the market’s recent optimism.
The major indexes fell about 2 percent, including the Dow Jones industrial average, which lost more than 280 points.
The National Association of Realtors said sales resumed their decline in June after a slight rebound in May. Home resales declined by 2.6 percent in June, well beyond the 1 percent drop economists had forecast.
Investors punished shares of homebuilders and financial companies Thursday because both sectors have struggled with the declining housing market.
Alan Lancz, director at investment research group Lancz Global, said investors are concluding that while financials had been oversold in recent weeks and were due for a rebound, problems remain with tight credit and souring mortgage debt.
“You have the rally and you almost get the hangover now where you say ‘You know, we’re not out of the woods yet,’ ” he said.
The Dow fell 283.10, or 2.43 percent, to 11,349.28. It was the biggest decline for the Dow since June 26.
The pullback erased the nearly 170 points added in the two prior sessions. Last week, the Dow gained nearly 400 points. While some declines after the latest rally wouldn’t have come as a surprise, the drop Thursday revealed fresh unease about the economy.
Broader stock indicators also declined. The Standard & Poor’s 500 index fell 29.65, or 2.31 percent, to 1,252.54. A jump in Inc. shares helped contain some of the decline in the technology-heavy Nasdaq composite index, which fell 45.77, or 1.97 percent, to 2,280.11.
Stocks had risen in the prior two sessions as the price of oil declined. Oil is now down more than $20 after just weeks ago hitting a record above $147 a barrel. A barrel of light, sweet crude rose $1.05 Thursday to settle at $125.49 on the New York Mercantile Exchange.
Fannie Mae and Freddie Mac fell sharply after rallying earlier in the week on legislation speeding through Congress that would grant the Treasury Department power to extend the government- sponsored mortgage companies an unlimited line of credit and to buy an unspecified amount of their stock, if necessary. The companies together back or own $5 trillion in mortgages — nearly half the nation’s total.
Fannie Mae fell $2.98, or 20 percent, to $12.02, while Freddie Mac fell $1.99, or 18 percent, to $8.81.
Lancz said the run-up in previous sessions may have led some investors to become too optimistic about the overall market’s prospects for a speedy recovery. Stocks are still down nearly 20 percent from the highs seen in October.
“You’re going to have these starts and stops but it’s going to be a really long-term process,” he said.
