By Kate Gibson and Wallace Witkowski, MarketWatch

SAN FRANCISCO (MarketWatch) -- U.S. stocks finished lower Tuesday as worries about the so-called fiscal cliff overtook the enthusiasm that came with home improvement retailer Home Depot Inc.'s better-than-expected results.

"Trading like today in reaction to Home Depot is completely sensible; other than [that] we have this fiscal-cliff issue," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

Erasing earlier gains, the Dow Jones Industrial Average (DJI) tumbled 58.90 points, or 0.5%, to close at 12,756.18, with most of the selloff coming in the final hour of trading.

Microsoft Corp.'s (MSFT) 4% loss led the Dow lower after the software maker said its Windows chief was leaving, effective immediately.

The sustainability of any stock-market rally could be questionable until progress is made on budget talks, without which more than $600 billion in automatic tax hikes and spending cuts would kick off in January.

"The markets are going to be held hostage to that. It's just too big of an event when you're talking up to 4% of GDP -- that's not inconsequential," Luschini added.

Wall Street largely wants to see the issue resolved, but how that is accomplished is less of a concern, according to the strategist. "Whether you like the outcome or not, businesses can adapt to that."

Home Depot (HD), the best performer on the index with a 3.6% gain, was among the six out of 30 Dow components finishing higher. The home-improvement retailer reported profit that topped expectations.

Home Depot's results "speak to something that has been remarkable: Every time you count them out, the consumer has come back to hold up their end of the bargain," commented Luschini.

The S&P 500 Index (SPX), which also spent much of the day in slightly positive territory, lost 5.50 points, or 0.4%, to close at 1,374.53.

The technology and financial sectors weighed, with Hewlett-Packard Co. (HPQ), Citrix Systems Inc. (CTXS), and Genworth Financial Inc. (GNW) among the notable decliners.

Shares of MBIA Inc. (MBI) fell 19% after Bank of America Corp. (BAC) offered to buy the insurer's outstanding bonds to block its moves to put space between it and a cash-deprived unit.

Consumer discretionary and utilities performed the best among the S&P's 10 sectors, with Ross Stores Inc. (ROST), Limited Brands Inc. (LTD), Urban Outfitters Inc. (URBN) and TJX Cos. (TJX) following Home Depot shares higher.

The Nasdaq Composite Index (RIXF) lost 20.37 points, or 0.7%, to 2,883.89.

For every stock that rose more than two fell on the New York Stock Exchange, where 677 million shares traded by the close. Composite volume cleared 3.4 billion shares.

Stocks were mostly higher much of the afternoon after starting the session lower on worries that came with euro-area leaders failing to agree on the management of Greece's debt, pushing off a further decision until a meeting next week.

President Barack Obama, who has invited Democratic and Republican leaders to the White House this week to start discussions on averting the fiscal cliff, on Tuesday met with labor leaders. On Wednesday, Obama planned talks with business executives including Ford Motor Co. (F) Chief Executive Alan Mulally.

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