Another day of dismal housing news sent stocks lower for the third straight day Wednesday, after a government report showed a record drop in new home sales.

The Dow Jones industrial average slipped 41 points, or 0.4%, the S&P 500 fell 6 points, or 0.6%, and the Nasdaq composite sank 9 points, or 0.4%.

All three major indexes sold off sharply immediately following the housing data but managed to recoup some losses as homebuilding and housing material stocks crept higher.

“[It's] a sign that they had priced in the bad news, and this has allowed the rest of the market to come back,” said Peter Boockvar, chief market strategist with Miller Taback & Co.

Lennar Corp., KB Home and Toll Brothers all edged higher.

But the same news that lifted homebuilding stocks battered the financial sector, with big names like Citigroup and Bank of America falling more than 1%.

“[Banks] have given back the entire year of gains because they are holding mortgage-related debt,” said Boockvar. “House prices have taken a leg down because of this data, and if a person pays less for a home, this hurts a bank’s balance sheet.”

On Tuesday, stocks sank for a second straight session after a 27% plunge in existing home sales fueled worries about an economic slowdown, sending the Dow 134 points lower on the day.

Economy: New home sales unexpectedly plummeted to the lowest level on record in July, dropping 12.4% in July, the government reported. Economists had expected sales to bump higher.

The disappointing data comes right on the heels of another dismal housing report that showed a sharp drop in existing home sales, considered the core of the residential real estate market.

Meanwhile, new orders for long-lasting goods fell short of forecasts, edging up a modest 0.3% in July. Economists had expected the government report to show a 3% jump.

Companies:Toll Brothers surprised analysts by posting its first quarterly profit in three years as revenue declined less than expected. The company said its net income was $27.3 million, or 16 cents per share, compared to a loss of $472.3 million, or $2.93 a share, a year earlier.

Toll Brothers is the first homebuilder to report results following the expiration of the homebuyer tax credit, which helped boost the housing market. Shares of Toll Brothers rose 3%.

World markets: European shares were under pressure in early trading. The CAC 40 in France and Britain’s FTSE 100 fell more than 1%, while the DAX in Germany lost 0.9%.

Investors digested Standard & Poor’s slashed rating of Ireland’s sovereign debt. The agency cut Ireland’s rating by a notch to double-A-minus, citing the massive cost of patching up the hemorrhaging Irish banking system.

Investors digested Standard & Poor’s slashed rating of Ireland’s sovereign debt. The agency cut Ireland’s rating by a notch to double-A-minus, citing the massive cost of patching up the hemorrhaging Irish banking system.

Asian markets ended lower. Japan’s benchmark Nikkei index dropped 1.7%, hitting a 16-month low. The Hang Seng in Hong Kong shed 0.1%, and the Shanghai Composite sank more than 2%.

Currencies and commodities: The dollar fell against the euro and the British pound, but firmed versus the Japanese yen.

Oil futures for October delivery slipped 65 cents to $70.98 a barrel. The government’s weekly oil inventory report comes out after the market opens.

Gold for December delivery rose $6.40 to $1,1239.80 an ounce.

Bonds: Prices for Treasurys were mostly higher. The yield on the 10-year note edged down to 2.47% from 2.50% late Tuesday. Bond prices and yields move in opposite direction. The U.S. will offer $36-billion in 5-year notes Wednesday.

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