Dow drops day after rally, but banks, builders gain

By Ellis Mnyandu

NEW YORK (Reuters) - Blue-chip stocks fell on Tuesday as investors booked profits following a record reached in the previous session, but in the broader market, bank stocks and home builders gained as investors bet the worst of the credit squeeze may be over.

The flow of cash into equities slowed a day after the Dow rose to a record close, buoyed by hopes that Wall Street may have seen the worst of the credit squeeze after three big banks disclosed expected losses from the crisis.

A drop in oil prices dominated the session as the dollar strengthened, pressuring shares of energy companies such as Exxon Mobil Corp (XOM.N: Quote, Profile, Research, Stock Buzz), which dropped 1.8 percent. The S&P energy index fell 1.3 percent.

Despite more weak data on the housing sector, optimism that banks are working out losses from the credit market's turmoil drove banking stocks higher, while home builders' shares extended gains from the previous session that followed an upgrade from Citigroup.

"We had this massive move up in the market yesterday, so it's only natural that there be some profit-taking," said Stephen Massocca, co-chief executive of San Francisco-based investment bank Pacific Growth Equities.

"The market, by and large, thinks that banks have taken their medicine, they've recognized their problems and are dealing with them."

The Dow Jones industrial average .DJI was down 40.24 points, or 0.29 percent, to end at 14,047.31. The Standard & Poor's 500 Index .SPX was down 0.41 of a point, or 0.03 percent, at 1,546.63. But the Nasdaq Composite Index .IXIC was up 6.12 points, or 0.22 percent, to close at 2,747.11.

After the bell, shares of Micron Technology Inc (MU.N: Quote, Profile, Research, Stock Buzz)dropped more than 3 percent to $11.38 from the NYSE close of $11.79 after the memory chip maker posted a quarterly loss. The company cited declines in the prices for chips used in digital cameras, music players and other gadgets as a major reason for its loss.