U.S. stocks fell Thursday as concern about the extent of the housing market's slowdown unleashed a sell-off in shares of mortgage lenders and hurt shares of big banks like Citigroup Inc.

The Dow Jones industrial average fell 29.24 points, or 0.23 percent, to close at 12,637.63, while the Standard & Poor's 500 Index slipped 1.71 points, or 0.12 percent, to 1,448.31. The Nasdaq Composite Index edged down 1.83 points, or 0.07 percent, to 2,488.67.

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Warnings of losses stemming from bad home loans from two of the top three U.S. subprime mortgage lenders, Britain's HSBC Holdings Plc and New Century Financial Corp. , punished the broader financial services sector.

Investors are unconvinced that the U.S. housing market has stabilized after its worst decline in many years as Toll Brothers Inc. (TOL) said home-building revenue will fall significantly, while shares of New Century tumbled over 30 percent, its largest daily loss since June 1997.

"HSBC is a red flag. Investors worldwide were nearly convinced that we'd seen the worst that was going to happen to the U.S. housing market and it was going to work its way higher," said Mike Driscoll, listed trader and managing director of Bear Stearns in New York.

"The warning from HSBC puts a little bit of a damp blanket on that," he said.

The financial services sector, by far the most influential sector in the broader market, was one of the worst-performing groups within the S&P 500 as concern about mortgage delinquencies weighed on Citigroup (C) and JPMorgan Chase & Co., reflecting investors' worries that the housing slowdown may further damage economic growth.

The New York-listed shares of HSBC, one of the largest U.S. subprime mortgage lenders, dropped 2.7 percent, or $2.44, to $89.78 on the New York Stock Exchange.

In turn, the shares of New Century plunged 36.2 percent, or $10.92, to $19.24, making it the NYSE's biggest percentage decliner.

Citigroup dropped almost 1 percent, or 51 cents, to $54.44, dragging on the blue-chip Dow average and the S&P 500, while shares of Dow component JPMorgan fell 0.6 percent, or 28 cents, to $50.93.

Luxury home builder Toll Brothers slid 3 percent, or $1.04, to $33.39 after saying it expects a 19 percent drop in home-building revenue. This triggered a loss of 2.7 percent in the Dow Jones U.S. Home Construction index .

Late in the session, the Dow and the S&P 500 trimmed some of their losses after a jump of $2 in crude oil futures prices pushed up shares of major energy companies Exxon Mobil Corp. (XOM) and Chevron .

Exxon Mobil shares rose almost 1 percent, or 67 cents, to $75.46, while Chevron stock gained 1.5 percent, or $1.11, to $73.75 in NYSE trading.

Crude oil futures for March delivery rose $2.00 to settle at $59.71 a barrel on the New York Mercantile Exchange.

The semiconductor sector was the second-heaviest weight on the Nasdaq 100 as shares of Maxim Integrated Products Inc.

fell 2.6 percent, or 84 cents, to $31.11. The stock slid a day after Maxim, a maker of mixed-signal microchips, reported higher quarterly revenue, but gave no profit figure due to a review of its past stock options.

Intel Corp., the world's dominant chip maker, slipped 0.7 percent, or 15 cents, to $21.36 on Nasdaq.

Trading was active on the NYSE, with about 1.61 billion shares changing hands, below last year's estimated daily average of 1.84 billion, while on Nasdaq, about 2.04 billion shares traded, above last year's daily average of 2.02 billion.

Declining stocks outnumbered advancing ones by a ratio of about 17 to 16 on the NYSE and by 15 to 14 on Nasdaq.

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