KOREAN TENSION: North Korea and South Korea exchanged artillery fire, killing at least two South Korean marines. Investors worry about increasing tensions in Asia

U.S. ECONOMIC WOES: Sales of previously-owned houses in the U.S. dipped 2.2 percent in October. Also, Federal Reserve officials predicted that the economy will grow only 2.4 percent to 2.5 percent this year. That’s down sharply from a previous projection of 3 percent to 3.5 percent.

STOCKS FALL: The Dow Jones industrial average fell 142.21, or 1.3 percent, to 11,036.37.

NEW YORK – Stocks fell Tuesday after North Korea and South Korea exchanged artillery fire near their disputed sea border, killing at least two South Korean marines. Treasury prices, the dollar and gold all rose as investors sought safe places to park money.

A weak reading on existing home sales for October weighed on the stock market, as did concerns that a bailout of Ireland may not be enough to contain a regional debt crisis in Europe. Borrowing costs for Portugal and Spain rose, leading Spain to trim the size of a debt sale.

Stocks received little support from an upward revision of U.S. economic growth. Before trading opened, the government reported that gross domestic produce expanded at an annual rate of 2.5 percent in the third quarter, up from an earlier estimate of 2 percent.

Quincy Krosby, chief market strategist for Prudential Financial, said traders were too busy worrying about North and South Korea. “That trumped the GDP number,” she said.

The Dow Jones industrial average fell 160.15, or 1.4 percent, to 11,018.43 in afternoon trading.

The Standard & Poor’s 500 lost 18.33, or 1.5 percent, to 1,179.51. The Nasdaq composite index fell 39.52, or 1.6 percent, to 2,492.50

The clash between North and South Korea was one of the most dramatic between the two rivals since the end of the Korean war and one of the few to put civilians at risk. Fifteen South Korean soldiers and three civilians were injured in the artillery exchanges.

The escalating tensions came shortly after the reclusive North Korean regime claimed to have a new uranium enrichment facility and six weeks after the country’s leader Kim Jong Il anointed his youngest son as his heir apparent.

The showdown between the two countries raises tensions in Asia, but was seen as less of an immediate danger in the U.S. Traders said the flare-up was seen by many as an excuse to pare back exposure to risk ahead of the Thanksgiving holiday Thursday. Trading is expected to be light Wednesday as people leave early. Markets are open for an abbreviated session on Friday.

“Investors don’t want to go into the holiday with any lingering doubts,” said John Derrick, director of research for U.S. Global Investors. “The tensions in Korea just gave them another excuse to sell.”

Hewlett-Packard Co. was the only one among the 30 stocks that make up the Dow Jones industrial average to rise. Shares gained 0.5 percent after the technology company beat Wall Street’s expectations for revenue and income thanks to strong corporate spending.

Energy shares led the decline as the price of crude oil fell. Chevron Corp. fell 2.3 percent, while ExxonMobil Corp. lost 1.8 percent.

In economic news, sales of previously owned houses dipped 2.2 percent in October, according to the National Association of Realtors. That puts sales at a seasonally adjusted rate of 4.43 million units. Economists had expected a rate of 4.5 million.

The dollar rose 1.3 percent against an index of six other currencies and the euro fell 1.8 percent against the dollar, to $1.34. Gold rose 1.5 percent to $1,377.60 an ounce.

The VIX, a measure of volatility in U.S. stock prices, jumped 14 percent to 21. The index had been steadily falling since May 20 when it went as high as 45, its highest level of the year.

Overseas markets also fell in response to the skirmish between North and South Korea. Hong Kong’s Hang Seng index dropped 2.6 percent. Japan’s markets were closed for a holiday. In Europe, France’s CAC-40 fell 2.4 percent, Germany’s DAX fell 1.7 percent and the FT-SE in Britain fell 1.8 percent.

Treasury prices rose, sending their yields lower. The yield on the 10-year Treasury slipped to 2.77 percent, down from 2.80 percent late Monday.

On Wednesday, the markets will have to digest a raft of economic data. Reports are due out on weekly claims for unemployment benefits, durable goods and personal income.

NEW YORK (Reuters) – U.S. stocks dropped more than 1 percent on Tuesday as rising tensions on the Korean peninsula added to worries over how euro zone debt woes could affect domestic markets.

North Korea fired scores of artillery shells at a South Korean island, killing two soldiers and setting houses ablaze, and South Korea returned fire. The iShares MSCI South Korea Index Fund (EWY.P) fell 5.3 percent.

Global stock markets tumbled while the dollar climbed as the geopolitical tensions and worries over Ireland’s debt problems drove investors to the relative safety of the U.S. currency. Crude oil futures sank 1.4 percent.

“The prospect of armed conflict in Asia along with the debt problems on Europe are creating a lot of negative sentiment,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.

The Dow Jones industrial average (.DJI) dropped 138.88 points, or 1.24 percent, at 11,039.70. The Standard & Poor’s 500 Index (.SPX) was down 15.94 points, or 1.33 percent, at 1,181.90. The Nasdaq Composite Index (.IXIC) slid 32.63 points, or 1.29 percent, at 2,499.39.

In the latest economic data, the U.S. economy grew faster than previously estimated in the third quarter, but still not enough to address stubbornly high unemployment. Also, existing home sales fell by more than forecast in October after two months of gains.

“The GDP data shows that the economy is certainly still growling, but the numbers weren’t big enough to disrupt the market’s focus on overseas events.” McCain said.

On the upside, Dow component Hewlett-Packard Co (HPQ.N) rose 1.2 percent to $43.75 a day after it raised its outlook and posted stronger-than-expected quarterly profit.

The European Union urged Ireland to adopt an austerity budget on time to unlock promised EU/IMF funding, while Irish Prime Minister Brian Cowen rebuffed calls for a snap election and insisted the budget would go ahead as planned on December 7.

European stocks fell nearly 1 percent to a 3-week low, led by declining banking shares. U.S.-listed shares of Bank of Ireland (IRE.N) sank 23 percent to $1.71, while HSBC Holding (HBC.N) fell 1.8 percent to $51.36.

Among South Korean companies, steelmaker Posco (PKX.N) sank 4.5 percent to $96.52.

Hormel Foods Corp (HRL.N) rose 3.4 percent to $49.54 after it reported higher-than-expected profit, while Campbell Soup Co (CPB.N) lost 0.7 percent to $34.57 after its earnings missed expectations.

Minutes of the Federal Reserve’s November 3 Open Market Committee meeting that included its decision for more quantitative easing will be released at 2 p.m. EST (1900 GMT).

(Editing by Jeffrey Benkoe)

NEW YORK – Fighting between North Korea and South Korea and ongoing worries about European debt point to a lower opening for stocks on Tuesday.

South Korea reported that North Korea had fired artillery shells onto one of its islands. South Korea says it returned the North Korean fire.

Investors remain uneasy about Europe’s debt crisis after Ireland accepted a massive bailout. The concern now is that Portugal and Spain may be the next countries to need help. The cost of borrowing for both countries rose, leading Spain to trim the size of a debt sale.

Stock futures barely budged after the Commerce Department reported its revised estimate of how much the U.S. economy grew from July through September. The government said gross domestic product expanded at an annual rate of 2.5 percent, up from a 2 percent estimate last month.

With the trading week shortened by the Thanksgiving holiday, investors have to digest roughly five days of economic data squeezed into three days.

Later Tuesday morning, the National Association of Realtors will release its monthly look at sales of previously owned houses. Wall Street economists expect sales will rise to a seasonally adjusted annual rate of 4.5 million units in October. If true, it would mark the third straight month of rising sales.

Dow Jones industrial average futures are down 102, or 0.9 percent, at 11,064. Standard & Poor’s 500 futures are down 13, or 1.1 percent, at 1,184. Nasdaq 100 futures are down 20, or 0.9 percent, to 2,134.

Most overseas markets headed lower in Tuesday trading. Hong Kong’s Hang Seng index dropped 2.6 percent to 22,896 and China’s Shanghai Composite Index lost 1.9 percent to 2,828.28.

All the turmoil overseas is giving Treasury prices a lift as investors seek safety in U.S. government bonds. The yield on the 10-year Treasury slipped to 2.74 percent, down from 2.80 percent late Monday. Bond yields fall when prices rise.

U.S. stock ended mixed on Monday. The Dow Jones industrials fell 0.2 percent to 11,179, but the Nasdaq composite index rose 0.6 percent to 2,532.

TOKYO – Asian stocks were mostly lower Tuesday as an interest rate hike in South Korea added to speculation China will also tighten monetary policy to cool inflation.

South Korea’s Kospi fell 0.7 percent to 1,900.71 after the Bank of Korea raised its key interest rate for the second time in four months to 2.5 percent from 2.25 percent. The decision comes as the country grapples with concerns about inflation as well as broader worries about a slowing global economy.

There are also expectations China will raise soon raise interest rates again to cool growth after inflation hit a 25-month high in October. Any slowdown in the Chinese economy, the world’s second-largest and fastest growing, would likely reduce its demand for oil, metals, grains and other imports and be felt around the world.

China’s Shanghai Composite Index slid 1.3 percent to 2,974.51. Japan’s Nikkei 225 stock average was off 0.2 percent at 9,805.52 and Australia’s S&P/ASX 200 dropped 0.3 percent to 4,674.70.

Markets in Singapore and New Zealand were also lower while benchmarks in Taiwan and Malaysia gained.

New York stocks had a mixed finish Monday as the dollar posted its second day of gains over concerns that Europe is on the edge of another bailout.

Investors believe that Ireland may seek help from its fellow members in the European Union as its economy sputters. The dollar also spiked in May when Europe bailed out Greece.

The Dow Jones industrial average rose 9.39, or 0.1 percent, to close at 11,201.97. The broader Standard & Poor’s 500 index fell 1.46, or 0.1 percent, to 1,197.75, while the technology-focused Nasdaq composite index fell 4.39, or 0.2 percent, to 2,513.82.

In currencies, the dollar fell to 83.09 yen from 83.13 yen late Monday. The euro rose to $1.3604 from $1.3570.

Benchmark crude for December delivery was down 51 cents at $84.35 a barrel in electronic trading on the New York Mercantile Exchange. The contract slipped 2 cents to settle at $84.86 on Monday.