U.S. stocks dropped Tuesday, following three straight trading days of gains, as weak European economic data and a downbeat reading on the domestic housing market put growth concerns back in the spotlight.

The Dow Jones Industrial Average recently fell 66 points, or 0.6%, to 11417, recently led lower by Bank of America's 3.2% drop and J.P. Morgan Chase's 1.7% decline. The blue-chip index is coming off a 214-point rally on Monday. It has gained 7.1% over the last three trading days, its biggest such move since March 2009.

The Standard & Poor's 500-stock index lost 10 points, or 0.8%, to 1195. Financial and material stocks were the biggest decliners in a broad selloff. All 10 of the S&P 500 sectors traded in the red. The Nasdaq Composite shed 24 points, or 1%, to 2531.

The action follows declining markets overseas. European stocks dropped after data showed the euro zone economy grew more slowly in the second quarter than at any time since the end of the recession in the same period of 2009. In particular, economic growth in Germany, Europe's largest economy, slowed sharply.

Germany's gross domestic product rose only 0.1% from the previous quarter, and by 2.7% in annual terms, leaving it below precrisis levels and calling into question the European Central Bank's decision to raise rates twice this year.

"Germany's GDP shows that the strongest European Union country has just stopped growing and completely grinded to a halt," said Jeff Sica, president and chief investment officer of SICA Wealth Management. "If the strongest player is faltering, what's happening to the weaker players?"

Investors will also pay close attention to a scheduled meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy later Tuesday. A press conference is scheduled to follow the meeting. They are seeking ways to reassure investors and maintain access to international bond markets for the governments of Italy and Spain.

"I don't anticipate it to be an earth-shattering moment," said Todd Colvin, vice president at MF Global. "But the market's become very reactive. We're just waiting for that announcement."

On the U.S. economic front, the Commerce Department said home construction dropped in July as the battered housing market continues to struggle. Housing starts dropped 1.5% from a month earlier to a seasonally adjusted annual rate of 604,000. The decline in July follows two consecutive monthly gains.

The results were a little better than economists were forecasting. But construction remains below a healthy level, which economists say would be 1 million to 1.5 million starts.

Additionally, the Labor Department said U.S. import prices increased last month as both fuel and non-fuel costs rose, reversing some of June's declines but leaving the overall inflation picture subdued. Industrial production in the U.S. also rose slightly last month as auto makers recovered from natural disasters earlier this year in Japan. Read More