Oct. 20 (Bloomberg) -- U.S. stocks fell and the dollar rebounded from a 14-month low against the euro as a disappointing report on housing starts overshadowed better-than- estimated earnings at companies from Apple Inc. to Caterpillar Inc. Treasuries gained, while oil dropped from a one-year high.

Pulte Homes Inc. and Home Depot Inc. led builders and retailers lower as the Commerce Department report signaled the housing market may slow once tax incentives expire. Coca-Cola Co. lost 1.3 percent after sales trailed estimates, while Boeing Co. slid 2.9 percent on Morgan Stanley’s recommendation to sell the shares. Apple and Caterpillar rose at least 3 percent.

The Standard & Poor’s 500 Index lost 0.6 percent to 1,091.06 at 4:02 p.m. in New York, retreating from a one-year high. The Dow Jones Industrial Average decreased 50.71 points, or 0.5 percent, to 10,041.48. Asian shares advanced, while European benchmarks erased gains. The dollar appreciated 0.2 percent to $1.4932 per euro.

The housing data “is a bit of a surprise, the consensus going in was for a positive tone,” said Keith Wirtz, chief investment officer at Fifth Third Asset Management Inc., which oversees $20 billion in Cincinnati. “The disappointment will have an impact on the market. The market at these valuation levels is susceptible to news flow each and every day.”

A seven-month rebound from a 12-year low in March has lifted the S&P 500 by 61 percent and left it trading at more than 20 times the reported operating earnings of its companies, the highest since 2004.

Earnings Watch

More than 130 companies in the S&P 500 were scheduled to report third-quarter results this week. Earnings have surpassed analysts’ projections for 79 percent of the companies that released results so far, according to Bloomberg data. More than 72 percent beat the average estimate in the second quarter, matching the highest proportion in data going back to 1993.

“We’re getting to the point in this market where we’re going to have to see revenues come through,” said Warren Koontz, head of large-company value stocks at Loomis Sayles & Co. in Boston, which manages $140 billion. “Though they’re not declining as much as they were, to continue this move up, we have to start to see the evidence of revenues following, because we can’t cut our way to prosperity in earnings management.”

Sales have fallen 2.2 percent at S&P 500 companies that reported third-quarter results since Oct. 7 and have trailed analysts’ estimates by 0.9 percent, Bloomberg data show.

Housing Concern

Pulte lost 5 percent and Lennar Corp. slumped 2.9 percent. Home Depot, the biggest home-improvement chain, slid 2.4 percent to $26.97. The Commerce Department said housing starts rose 0.5 percent in September to an annual rate of 590,000 and the pace in August was lower than previously estimated. Economists in a survey had forecast a rate of 610,000. Permits, a sign of future construction, fell for the second time in the past three months.

Equities also retreated after a gauge of wholesale prices unexpectedly declined in September on lower fuel costs. The 0.6 percent decrease in prices paid to factories, farmers and other producers was the second drop in three months and followed a 1.7 percent rise in August, the Labor Department said. Excluding food and fuel, so-called core prices declined 0.1 percent.

Coca-Cola shares fell 1.3 percent to $54.07 after the world’s largest soft-drink maker said third-quarter profit rose less than 1 percent. Revenue decreased 4.2 percent to $8.04 billion, less than the $8.15 billion estimated by analysts in a survey.

Boeing Downgrade

Boeing had the biggest drop in the Dow average, slumping 2.9 percent to $51.89. The world’s second-biggest commercial- plane builder was cut to “underweight” from “equal-weight” at Morgan Stanley, which said the company’s shares “may face downward pressure given likelihood for further delays on the 787, negative 2010 cash flow, poor aircraft order demand and negative EPS revisions ahead.”

Lockheed Martin Corp. tumbled 6.5 percent to $71.99 after its 2010 forecast trailed analyst estimates. The world’s largest defense company’s third-quarter profit was 5 percent higher than the average estimate.

Boston Scientific Corp. fell the most in the S&P 500, slumping 16 percent to $8.57. The maker of Taxus heart stents lowered its 2009 sales forecast, prompting Wells Fargo & Co. to downgrade the stock to “market perform” from “outperform.”

State Street Corp., the world’s largest money manager for institutions, fell 8.4 percent to $47.84 after lowering its earnings forecast for the current year.

Regional Banks

Results from Marshall & Ilsley Corp. and Zions Bancorp deepened losses for regional banks in the S&P 500, the sixth- worst performer among 154 industry groups this year. Marshall & Ilsley, Wisconsin’s largest bank, fell 8.8 percent to $6.55 after posting a third-quarter loss on housing-related credits and loans to other bank holding companies.

Zions, Utah’s biggest bank, reported a fourth straight quarterly loss as more borrowers fell behind on payments and writedowns on debt securities increased. The shares fell 6 percent to $17.23.

Raw-materials producers in the S&P 500 slumped 1.1 percent as a group. Copper retreated from a one-year high as the housing data spurred concern demand will abate. Energy shares declined 0.9 percent as crude oil for November delivery declined 0.7 percent to $79.09 a barrel in New York as the rebound in the dollar reduced the appeal of commodities as an alternative investment.

Exxon Mobil Corp., the world’s biggest energy company, and Alcoa Inc., the largest U.S. aluminum producer, retreated at least 0.8 percent.

The yield on the 10-year Treasury note decreased six basis points, or 0.06 percentage point, to 3.33 percent.

Apple, Texas Instruments

Apple advanced 4.7 percent to $198.76 as back-to-school orders for iPhones, iPods and Macintosh computers fueled a 47 percent increase in fourth-quarter net income.

Texas Instruments Inc. rose 0.6 percent $23.66 after its third-quarter earnings and fourth-quarter forecast topped estimates. The second-largest U.S. chipmaker said earnings will be 42 cents to 50 cents a share this quarter on sales of $2.78 billion to $3.02 billion. Analysts predict profit of 40 cents a share on revenue of $2.79 billion.

Caterpillar Inc., which has slashed inventories and capacity amid the worst decline in its markets since the Great Depression, rallied 3 percent to $59.61 after reporting a per- share profit of 64 cents. Analysts had estimated 5 cents, according to a Bloomberg survey.

‘Decent So Far’

“Earnings reports have been decent so far, but the way it works is that earnings reports have to come in good now because the market over the past few months has been forecasting better earnings,” said Robert Stimpson, a money manager at Oak Associates Inc. in Akron, Ohio, which manages $800 million.

Companies in the S&P 500 will report a ninth straight quarter of declining profits, the longest streak since the Great Depression, before returning to growth in the final three months of the year, analysts’ estimates compiled by Bloomberg show.

Pacific Investment Management Co. expects nominal economic growth of 3 percent to 4 percent and returns on assets to be half of what they were in the prior decade as consumers curb spending and increase savings.

“We are leaving the world where the U.S. dominated consumption and was the engine of global growth,” Bill Gross, co-chief investment officer of the world’s biggest manager of bond funds, wrote in a commentary on Pimco’s Web site. “Now the rest of the world, whether it’s China, Brazil, or other future tigers, will begin to dominate and must in turn replace their export-driven growth with internal demand-generated growth.”

U.S. gross domestic product shrank at a 0.7 percent annual rate from April to June, the best performance in more than a year. China’s GDP grew at a 7.9 percent rate in the second quarter and is forecast to exceed 10 percent in the first quarter of next year, according to the Development Research Center, an affiliate of that nation’s State Council.

Stocks Vs. Oil

The S&P 500 may gain another 55 percent to bring the index’s ratio to oil prices in line with the historical average, Bespoke Investment Group said. The S&P 500 closed at 1097.91 yesterday, or about 14 times the price of crude after oil climbed to almost $80 a barrel. The benchmark for American equity traded at an average of 21 times oil between 1986 and 1997, Bespoke said in a research note.

To contact the reporters on this story: Elizabeth Stanton in New York at estanton@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

Last Updated: October 20, 2009 16:25 EDT