U.S. stocks fell on Monday after data showed the number of unsold homes reached its highest level in more than 15 years in July, adding to concerns about the housing market and consumer spending.

Shares of banks, brokers and mortgage lenders fell on nagging credit worries and after Goldman Sachs slashed its earnings forecast on Lehman Brothers, Bear Stearns and Morgan Stanley.

But trading was light and volatility fell from recent highs with many traders away from their desks on vacation and markets in London closed for a holiday.

Shares of industrial conglomerates dependent on economic growth, such as United Technologies and General Electric Co, were among the biggest drags on the market as investors worried about the impact of the housing slump on the economy.

Inventories continuing to rise fits part and parcel with the overall credit crunch and weakness in consumer confidence, said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

But the market is really waiting to see what economic data will indicate for the more recent history -- August -- and will try and read into the tea leaves what the Fed will do next.

The Dow Jones industrial average was down 56.74 points, or 0.42 percent, at 13,322.13. The Standard & Poor's 500 Index was down 12.58 points, or 0.85 percent, at 1,466.79. The Nasdaq Composite Index was down 15.44 points, or 0.60 percent, at 2,561.25.

Goldman Sachs slashed its third-quarter earnings forecast for Bear Stearns Cos Inc, Lehman Brothers Holdings Inc and Morgan Stanley, saying August was one of the worst operating environments for investment banks it had seen in years.

Bear Stearns and Lehman Brothers' shares both slumped more than 4 percent. Morgan Stanley's shares slipped 1.3 percent to $63.73 on the New York Stock Exchange.

The National Association of Realtors reported the pace of sales of previously owned U.S. homes fell slightly in July, while the supply of unsold single-family homes -- the bulk of the inventory included in the data -- rose to the highest level since 1991. The Dow Jones home construction index fell 4.6 percent.

Shares of Countrywide Financial Corp, the biggest U.S. mortgage lender, dropped 4.8 percent to $20 on the NYSE after Lehman Brothers lowered its 2007 and 2008 earnings per share estimates and cut its share price target. Other mortgage companies' shares followed suit, with Accredited Home Lenders dropping 4 percent to $5.80.

Shares of GE declined 1 percent to $39, while United Technologies fell 0.8 percent to $73.72.

Fears that financing for deals could become more stringent also pressured the market after Home Depot Inc slashed the buyout price of its supply unit. Shares of Blackstone Group, one of the few publicly traded private equity firms, fell 2.5 percent to $23.80.

Home Depot's stock jumped 1.6 percent to $35.25 on the NYSE.

There is a little bit of relief that at least some type of deal got through. But the fact it was done at such a discount foreshadows more difficulties to come, said Giri Cherukuri, head trader at OakBrook Investments in Lisle, Illinois.

Trading was thin on the NYSE, with about 1.1 billion shares changing hands, below last year's estimated daily average of 1.84 billion, while on Nasdaq about 1.31 billion shares traded, also trailing last year's daily average of 2.02 billion.

Declining stocks were outnumbering rising ones by a ratio of about 2 to 1 on the NYSE and on Nasdaq.