U.S. stocks fell on Tuesday as consumer sentiment dropped sharply and house prices unexpectedly dipped, denting optimism about a economic recovery.

Concerns about the economy overshadowed better-than-expected quarterly earnings from retailers, including Home Depot Inc . The top U.S. home improvement chain beat estimates and raised its profit forecast, sending its shares up 1 percent to $30.62.

The February consumer confidence data fell in February to the lowest in 10 months, and the Standard & Poor's/Case-Shiller indexes unexpectedly slipped in December. The releases followed an unexpected decline in business sentiment in Germany, which pressured overseas markets and fed uncertainty among investors who were worried about the U.S. Federal Reserve's plans for interest rates and worries over possible sovereign debt defaults in Europe.

Overall, there's not a lot of positive stuff to see, said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut. With equity markets having retraced about two-thirds of their recent decline, today's report (on consumer sentiment) could be the catalyst that leads to profit taking.

The Dow Jones industrial average <.DJI> dropped 60.16 points, or 0.58 percent, to 10,323.22. The Standard & Poor's 500 Index <.SPX> fell 8.84 points, or 0.80 percent, to 1,099.17. The Nasdaq Composite Index <.IXIC> lost 22.37 points, or 1.00 percent, to 2,219.66.

Investors were also confronted by a report from the Federal Deposit Insurance Corp that the total number of problem U.S. banks jumped 27 percent to 702 during the fourth quarter of 2009, reaching the highest level since 1993 amid signs the industry's recovery is still shaky.

(Reporting by Edward Krudy; Additional reporting by Ryan Vlastelica; editing by Jeffrey Benkoe)

Germany Fall