By Jennifer Coogan (NZ Herald)

U.S. stocks fell on Tuesday after a disappointing outlook from luxury home builder Toll Brothers Inc. raised concern that the housing sector, an important driver of economic growth, may be slowing.

Shares of Toll Brothers plunged 12.8 percent to $34.38 after the company warned new home deliveries and earnings next year would probably fall short of its forecast.

The slide in Toll Brothers' shares helped push the Dow Jones U.S. Home Construction Index down 7 percent.

Shares of Home Depot, the world's biggest home improvement retailer, fell 2.1 percent to $40.63 and ranked as the biggest drag on the Dow. Rival Lowe's Companies Inc. dropped 2.1 percent to $60.63.

The Dow Jones industrial average was down 28 points, or 0.26 percent, at 10,558.23. The Standard & Poor's 500 Index was down 2.54 points, or 0.21 percent, at 1,220.27. The technology-laced Nasdaq Composite Index was down 2.21 points, or 0.10 percent, at 2,176.03.

Economists have warned of a slowdown in the housing market because of a steady pace of interest-rate hikes. The average 30-year mortgage rate was 6.75 percent, according to BestInfo Inc. Rates are their highest since June 30, 2004, when the Federal Reserve began its cycle of rate increases.

"Rising rates are starting to take their toll and maybe there is something to this bubble idea," said Bruce Zaro, chief technical strategist at Delta Global Advisors. "It would make us cautious about putting money into the home-building sector."

Toll Brothers said softening demand in some markets will slow its ability to raise prices.

Several homebuilding stocks, including Centex Corp. and Meritage Homes Corp., dropped below key support levels, triggering further declines, Zaro said.

Centex fell 6.5 percent to $66.53, while Meritage sank 10 percent to $58.99.

Shares of auto industry stocks fell after auto parts maker Visteon Corp. (VC.N) posted a bigger-than-expected third-quarter loss.Visteon's stock plummeted 14.5 percent to $7.67 on the NYSE. Another auto parts maker, Dana Corp. slid 3.7 percent to $7.20.

Dow component General Motors Corp. (GM.N) lost 2.8 percent to $26 on the NYSE.