Retailers pull stocks lower on poor holiday sales

Home prices rose in most major U.S. cities in October compared with the same month a year ago, according to the latest Standard & Poor's/Case-Shiller national home price index. Sales rose at the same time the supply of available homes declined. The index increased 4.3 percent, the largest year-over-year jump in two and a half years, when a homebuyer tax credit temporarily boosted sales.

Retailers and other consumer discretionary stocks led the market lower. Macy's gave up $1.05 to $36.48, Target fell 73 cents to $58.81, Urban Outfitters fell $1.21 to $38.09 and Sears Holdings fell $1.80 to $38.47. Coach, the luxury handbag maker, sank $3.20 to $54.32, a decline of 6 percent, the biggest in the S&P 500 index.

Traders were also watching to see if a budget agreement materializes in Washington. President Barack Obama cut short his Christmas vacation in Hawaii and was returning to Washington later Wednesday to resume budget talks with Congressional Republicans.

The yield on the benchmark 10-year Treasury note edged down to 1.75 percent from 1.77 percent Monday. Trading was closed Tuesday for the Christmas holiday. Oil prices rose. Benchmark crude gained $2.37 to $90.98 a barrel.

Japanese stocks hit a nine-month high as a pro-business government prepared to assume leadership. The Nikkei 225 index surged 1.5 percent to 10,230.36.

Japan's new prime minister, Shinzo Abe, has put pressure on the Bank of Japan to raise its inflation target. The goal is to extricate the country from two decades of deflation, or declining prices, which has deadened the world's third-largest economy.