Late Selloff Whips Wall Street

Housing stocks were also among the worst decliners after a National Association of Realtors report on pending-homes sales for November showed a decline of 2.6%, more than three times the estimated drop.

Ian Shepherdson, chief economist with High Frequency Economics, said the "the underlying trend in sales remains downwards, because people are unwilling to borrow money in order to finance the purchase of rapidly depreciating assets."

KB Home (KBH Quote) piled on the bad news after the homebuilder posted a fourth-quarter loss that ballooned from a year ago due to the housing slump, forcing the company to write down unsold inventory. KB Home finished with a loss of $1.67, or 9%, at $16.81.

The Philadelphia Housing Sector Index tumbled 4%. The Amex Airline Index was also lower, dropping 8%, and the S&P Retail Index was off 1.9%.

Traders were also dealing with a speech from Philadelphia Fed Charles Plosser, who dented hopes for additional rate cuts. Plosser said that downside risks from even weaker economic growth may call for further adjustments to policy, but that inflation risks remain too high.

"We must remain vigilant on the inflation front and be prepared to act as necessary to avoid the risk of undermining public confidence in the central bank's commitment to price stability," said Plosser.

On the bright side, a 4.2% advance in the Amex Gold Bugs Index made it the best market subgroup. Gold Fields (GFI Quote) and Yamana Gold (AUY Quote) were up 6.2% and 7.5%, respectively, and were the top-performing component stocks.