U.S. stocks dropped for the first time in three days after Merrill Lynch & Co. reported the biggest quarterly loss in its 93-year history and home sales tumbled.

Merrill fell the most since 2002 on $8.4 billion in writedowns from credit-market losses. Broadcom Corp., the maker of chips for Nintendo Co.’s Wii game console, posted its steepest decline in five years after earnings decreased on higher research costs. A profit forecast that may miss some analysts’ estimates sent Amazon.com Inc. to its biggest slide in 15 months.

Stocks pared most of their decline late in the day and the Dow Jones Industrial Average recovered from a 206-point drop on speculation the Federal Reserve will cut interest rates before its Oct. 31 meeting. The Standard & Poor’s 500 Index lost 3.71, or 0.2 percent, to 1,515.88 after retreating as much as 2 percent. The Dow slipped 0.98 to 13,675.25. The Nasdaq Composite Index sank 24.5, or 0.9 percent, to 2,774.76.  [MORE]