Wall Street ticks higher, Facebook falls again

NEW YORK (Reuters) - Stocks advanced on Tuesday, led by financial shares after a strong read on existing home sales encouraged buying in sectors tied to economic growth.

Despite that, gains were capped a day after a huge rally as concerns persisted about the global economic outlook. Another slide by Facebook Inc pressured the Nasdaq.

Sales of existing U.S. homes rose sharply in April and a falloff in foreclosures pushed prices higher - welcome signs for investors worried about the strength of the U.S. recovery after recent weaker-than-expected economic data helped drive a pullback in stock prices.

"This is very good news for us to get on the U.S. front, especially since we haven't had much lately, but this is just a temporary change in sentiment. Europe will continue to lurch from one crisis to another," said Bernard Baumohl, managing director and chief global economist at the Economic Outlook Group in Princeton, New Jersey.

The home sales data lifted banking and housing stocks. The S&P 500 financial sector index <.GSPF> shot up 1.3 percent, with Bank of America Corp up 3.4 percent at $7.06. The Dow Jones U.S. home construction index <.DJUSHB> gained 2.7 percent.

Facebook lost 6.4 percent to $31.83, hurting sentiment about tech shares as doubts over the company's valuation increased after Reuters reported that Morgan Stanley , the lead underwriter, cut revenue forecasts for the social networking site shortly before the IPO.

At Tuesday's session low, the stock was down nearly 20 percent from its IPO price of $38 just two trading days after its market debut. Shortly after the opening bell on Tuesday, Facebook hit a session low of $30.98.

"When Facebook broke the deal price, it became self-fulfilling that there was going to be additional pressure on the stock," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles, adding that there were still those "who think valuation is way too high."

The Dow Jones industrial average <.DJI> was up 41.02 points, or 0.33 percent, at 12,545.50. The Standard & Poor's 500 Index <.SPX> was up 6.07 points, or 0.46 percent, at 1,322.06. The Nasdaq Composite Index <.IXIC> was up 4.51 points, or 0.16 percent, at 2,851.72.

The S&P 500 has bounced for the last two days after a six-day slide that found support at the 1,290 level, which coincides with the benchmark index's 10-month moving average.

On the earnings front, Best Buy Co Inc reported better-than-expected quarterly results, bolstered by a lower tax rate and an extra week as the world's largest consumer electronics chain closes stores and searches for a new chief executive. Best Buy shares rose 1.9 percent at $18.51.

Underscoring the debt problems that governments around the world are facing, Fitch cut Japan's sovereign credit rating on Tuesday as a political stalemate dims the chance that the country can curb its snowballing debt.

Fitch lowered Japan's long-term foreign currency rating to A plus from AA. It cut the local currency rating to A plus from AA minus. Both were cut with a negative outlook.

The Paris-based Organization for Economic Co-operation and Development also forecast that global growth would ease to 3.4 percent this year from 3.6 percent in 2011.

Nasdaq OMX Group faces short-term costs from its botched handling of Facebook shares on their first day of trading on Friday, but longer-term repercussions could be more expensive as it struggles to restore its image. Nasdaq OMX shares slid 1.2 percent to $22.50.

(Editing by Jan Paschal)

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