Stocks edged lower on Tuesday as a drop below $80 a barrel in oil hurt energy shares, offsetting optimism about further interest rate cuts fueled by the latest disappointing news on housing.

Shares of Exxon Mobil Corp fell 2.1 percent to $91.97, leading declines in the S&P 500 index.

The National Association of Realtors said its Pending Home Sales Index in August fell to the lowest reading since records began in January 2001.

The only major interpretation you can take out of this is that the market is focusing on further rate cuts, said Eric Kuby, chief investment officer at North Star Investment Management Corp. in Chicago.

Shares of rate-sensitive financial companies rose, including Bank of America Corp., up 1.8 percent at $51.55. The Dow Jones home builder index was up 5.6 percent.

The Dow Jones industrial average was down 21.62 points, or 0.15 percent, at 14,065.93. The Standard & Poor's 500 Index was down 2.77 points, or 0.18 percent, at 1,544.27. The Nasdaq Composite Index was down 2.40 points, or 0.09 percent, at 2,738.59.

U.S. crude oil fell 68 cents to $79.56. While the lower oil prices weighs on energy shares, it is viewed as a positive for the overall market because it means lower energy expenses.

Shares of handheld computer maker Palm Inc were down 4.5 percent at $15.28, a day after the company reported a net loss for the first quarter on Monday.

Despite profit warnings from some of the world's largest banks on Monday, investors sent the Dow industrials to an all-time high in the prior session in the belief financial institutions were aggressively putting behind them subprime mortgage and other credit-related problems.

(Additional reporting by Ellis Mnyandu)

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