U.S. stocks dropped on Tuesday, clearing earlier gains as shares of mortgage-related companies plunged on declining home sales and increased economists speculation that Countrywide Financial Corp is facing a fund shortage.

There is renewed speculation that Countrywide will declare bankruptcy or have some default action, said Al Greenberg a trader at broker-dealer BNY ConvergEx Group in Chicago told Reuters.

Shares of Countrywide plunged 21.06 percent to $5.99 on the New York Stock Exchange.

E*Trade Financial Corp., Ambac Financial Group Inc. and MBIA Inc. also fell and dropped a bundle of financial stocks down in the Standard & Poor's 500 Index to a four- year low.

The S&P 500 slipped .9, or 0.6 percent, to 1,415.28 as of 12:58 p.m. in New York, erasing a 14-point advance. The Dow Jones Industrial Average fell 34.71, or 0.3 percent, to 12,792.78. The Nasdaq Composite Index lost 1.21 to 2,500.67.

Other large declines were E*Trade, an online bank and brokerage, dropping down 47 cents to $2.36 along with shares of mortgage bond insurers MBIA Inc , down 15.8 percent at $14.88. AMBAC Financial Group Inc. was also down 18.4 percent to $19.16.