* Retailers, housing data weigh on markets
* Third-quarter GDP contracts in line with expectations
* Dow off 1.2 pct, S&P off 1.1 pct, Nasdaq off 1.1 pct
* For up to the minute market news, please click on [STXNEWS/US] (Updates to late afternoon, changes byline)
By Leah Schnurr
NEW YORK, Dec 23 (Reuters) - U.S. stocks fell in thin volume on Tuesday as housing data showed a steep drop in home values and continued concerns about the U.S. economy weighed on retailers, undermining the market's earlier gains.
fell for a second day as investors worried over whether last week's $17.4 billion aid package from the U.S government will provide enough of a lifeline for automakers to avoid bankruptcy. GM was down almost 16 percent and has more than wiped out gains made after the bailout was announced.
A spate of data earlier in the day showed sales of new and existing homes fell again, and the U.S. economy contracted in the third quarter, thanks to the biggest drop in consumer spending in 28 years.
"The GDP did continue to contract, which was negative for the market," said Jocelynn Drake, market analyst at Schaeffer's Investment Research in Cincinnati, Ohio.
"However, with light trading and how the Fed has moved in to really bolster the market, I think that's really going to keep us from having large swings at this point."
Retailers' stocks slipped after a survey showed stores had their lowest turnout in at least six years during the last weekend before Christmas. Shares of department store operator Macy's fell more than 5 percent.
The Dow Jones industrial average fell 105.61 points, or 1.24 percent, to 8,414.16. The Standard & Poor's 500 Index was down 9.39 points, or 1.08 percent, at 862.24. The Nasdaq Composite Index gave up 17.29 points, or 1.13 percent, at 1,515.06.
With just six trading days remaining in the year, there is little hope the markets will avoid having their worst yearly performance since the 1930s. The S&P 500 is down about 40 percent for the year.
GM was among the Dow's biggest drags, losing 16.8 percent to $2.93. On Monday, an analyst at Credit Suisse said the automaker's equity could be largely, if not entirely, wiped out as it complies with the restructuring targets outlined in the U.S. government's rescue package.was down 16.6 percent at $2.16.
In more evidence of the deteriorating housing market, data showed the pace of existing home sales plunged a record 8.6 percent in November and new-home sales fell 2.9 percent last month. For details, see [ID:nN23533913]
Analysts say stability in the housing sector is key to any recovery in the U.S. economy, which has been in a recession since late last year.
Gross domestic product figures showed the U.S. economy contracted at an annual rate of 0.5 percent, as economists had expected. [ID:nN23530274] The market's focus has shifted to the current fourth quarter, which is expected to be much weaker.
Retailers were in focus as Christmas nears and a survey released on Tuesday showed just 38.7 percent of Americans went shopping during the final weekend before Christmas -- usually among the busiest shopping weekends of the year.
The S&P Retail index fell 1 percent. Macy's lost 5.5 percent to $8.84, while JC Penney fell 2.6 percent to $18.29.
American Greetings was the latest company to say it couldn't give an outlook due to the deteriorating economy, while it reported a third-quarter loss. [ID:nBNG373328] The greeting card company's stock dove 36.1 percent to $6.28. (Editing by Jan Paschal)