NEW YORK (AFP) - US stocks dropped on Tuesday despite solid economic data in a decline analysts attributed to profit taking and the ongoing Sunni insurgent attacks in Iraq.

The Dow Jones Industrial Average tumbled 119.13 points (0.70 per cent) to 16,818.13, while the broad-based S&P 500 fell 12.63 (0.64 per cent) to 1,949.98.

Both indices had notched record closing highs last week. The tech-rich Nasdaq Composite Index lost 18.32 (0.42 per cent) at 4,350.36.

US equities rose early Tuesday after reports showed new home sales in May reached their fastest pace in six years and that US consumer confidence in June jumped to its highest level since January 2008.

But Michael James, managing director of equity trading at Wedbush Securities, attributed an afternoon swoon in equity markets to ongoing newsflow out of Iraq.

"People are using (Iraq) as an excuse to take some profits given how extended the market's been," Mr James said. "Selling has kind of brought out more selling."

On Tuesday, Iraqi air strikes killed at least 38 people as security forces held off attacks on a strategic town and an oil refinery, officials said.

Chipmaker Micron Technology rose 4.0 per cent on news of large annual increases in third-quarter sales and profits. Bank of America raised its target for Micron stock, saying the results confirm that profits will likely reach records for fiscal 2014 and 2015.

Vertex Pharmaceuticals surged 40.4 per cent higher after it reported promising results in tests of two drugs for treating cystic fibrosis.

Drug-store chain Walgreen fell 1.7 per cent as third-quarter earnings of 91 cents per share missed analyst forecasts of 94 cents. Revenues also came in below expectations.

Bond prices rose. The yield on the 10-year US Treasury declined to 2.59 per cent from 2.62 per cent on Monday, while the 30-year dropped to 3.41 per cent from 3.45 per cent. Bond prices and yields move inversely.