U.S. stocks fell on Tuesday after discount retailer Target gave a cautious holiday season outlook, but positive brokerage comments on tech bellwether Microsoft helped limit losses.

Target , the No. 2 discount retailer behind Wal-Mart Stores Inc , said it was cautious about its fourth-quarter performance. Dow component Home Depot Inc , the top U.S. home improvement chain, said it faced a great deal of pressure in the housing and home improvement markets.

Weak outlooks for the key holiday season are negative signs for the recovery since consumer spending accounts for about two-thirds of U.S. economic activity. Both retail bellwethers gave cautious outlooks even as they posted quarterly profits that topped estimates.

Target's very underwhelming guidance commentary is having a big negative effect, not only on Target but on overall retail sentiment, said Michael James, senior trader at Wedbush Morgan in Los Angeles.

It feels like the market should be down a lot more, but you're seeing some residual strength in technology and that is helping offset the weakness, James said.

The Dow Jones industrial average <.DJI> slipped 12.02 points, or 0.12 percent, to 10,394.94. The Standard & Poor's 500 Index <.SPX> dropped 3.51 points, or 0.32 percent, to 1,105.79. The Nasdaq Composite Index <.IXIC> fell 4.40 points, or 0.20 percent, to 2,193.45.

Tuesday's fall comes after major indexes set 13-month highs in the previous session on Federal Reserve Chairman Ben Bernanke's comment that interest rates will stay low for a long period. The Dow is up 59 percent since its March lows.

Target's shares fell 4.8 percent to $47.87, while Home Depot dropped 4.5 percent to $26.42. The S&P retail index <.RLX> declined 1.9 percent.

But Microsoft Corp rose 1.7 percent to $29.91 after Morgan Stanley raised its price target on the shares and said it was more positive on demand for Windows 7 and on the technology company's holiday season. Microsoft was the top percentage gainer on the Dow industrials and gave the biggest lift to the Nasdaq 100 <.NDX>.

Retailer Amazon.com Inc , down 0.9 percent to $130.47, was one of the biggest drags on the Nasdaq 100.

Oil prices rose despite a stronger U.S. dollar, while other commodities were trading mostly flat <.CRB>, giving support to shares in the basic materials sector.

In economic news, U.S. industrial output rose less than expected in October. Another report before the market opened showed wholesale inflation was tame, but stock futures showed little reaction.

(Editing by Kenneth Barry)