* Materials drag, led by Freeport McMoran
* Oil falls near 6-year low; copper sinks
* Indexes down: Dow 0.4 pct, S&P 0.5 pct, Nasdaq 0.3 pct (Updates to late afternoon)
By Caroline Valetkevitch
NEW YORK, Jan 13 (Reuters) - U.S. stocks fell in afternoon trading on Tuesday, reversing earlier gains of more than 1 percent, led by a drop in materials and energy shares as commodity prices fell further.
The S&P 500 around midday broke below its 50-day moving average, triggering selling.
Shares of Freeport McMoran Copper & Gold were down 6.9 percent, the biggest drag on the S&P 500. The S&P materials index fell 1.7 percent and was the S&P 500's worst-performing sector.
Copper prices dropped further below $6,000 per tonne to their weakest level in more than five years, while oil prices extended losses in U.S. afternoon trading.
"We're seeing commodity prices continue to go down, not only in oil but across the board. So it's this fear of lower commodity prices leading to global deflation which is leading this nervousness," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
The S&P energy index was down 1.4 percent, with shares of Exxon Mobil down 0.8 percent. Oil prices fell to near six-year lows, extending the recent free-fall in prices, as a big OPEC producer stood by the group's decision not to cut output. Brent briefly traded at par to U.S. crude for the first time in three months.
At 2:32 p.m., the Dow Jones industrial average fell 66.62 points, or 0.38 percent, to 17,574.22, the S&P 500 lost 10.28 points, or 0.51 percent, to 2,017.98 and the Nasdaq Composite dropped 12.84 points, or 0.28 percent, to 4,651.87.
Shares of homebuilders also fell broadly after KB Home forecast a drop in gross margins for the first quarter. Homebuilder stocks had been up earlier in the session, but KB Home was last down 13.7 percent, while a housing index was down 0.9 percent.
Alcoa Inc shares were down 2 percent, also having reversed earlier gains. The company late Monday reported a higher-than-expected quarterly profit due to automotive demand, higher aluminum prices and lower energy costs.
Declining issues outnumbered advancing ones on the NYSE by 1,986 to 1,070, for a 1.86-to-1 ratio; on the Nasdaq, 1,675 issues fell and 1,034 advanced, for a 1.62-to-1 ratio favoring decliners.
Goodyear Tire & Rubber stumbled 6.8 percent and was the S&P 500's biggest percentage decliner after the company estimated full-year operating income growth "slightly below" its forecast of 10 to 15 percent. (Editing by Lisa Von Ahn and Nick Zieminski)