American stocks dropped for the first time in three days after Merrill Lynch & Co. reported the biggest quarterly loss in its 93-year history and home sales tumbled. Merrill fell the most since 2002 on $8.4 billion in writedowns from credit-market losses. Broadcom Corp., the maker of chips for Nintendo Co.’s Wii game console, posted its steepest decline in five years after earnings decreased on higher research costs. A profit forecast that may miss some estimates sent Amazon.com Inc. to its biggest slide in 15 months.

Merrill lost $3.90, or 5.8%, to $63.22, its lowest since October 2005. Its writedown is the highest of any securities firm. The third-quarter loss of $2.24 billion, or $2.82 a share, compared with net income of $3.05 billion, or $3.17, a year earlier. Merrill’s deficit exceeded the average analyst estimate of a loss of 45 cents a share. The company’s shares have lost almost a third of their value this year.

Stocks pared most of their decline late in the day and the Dow Jones Industrial Average recovered from a 206-point drop as traders increased bets the Federal Reserve will cut its benchmark lending rate by 0.5 percentage point on October 31. The Standard & Poor’s 500 Index lost 3.71, or 0.2%, to 1,515.88 after retreating as much as 2%. The Dow slipped 0.98 to 13,675.25. The Nasdaq Composite Index sank 24.5, or 0.9%, to 2,774.76.