* Materials drag, led by Freeport McMoran
* KB Home forecasts drop in gross margins
* Oil settles lower; copper sinks
* Indexes down: Dow 0.2 pct, S&P 0.3 pct, Nasdaq 0.1 pct (Updates close with latest volume, adds details on reversal)
By Caroline Valetkevitch
NEW YORK, Jan 13 (Reuters) - U.S. stocks ended down slightly in a volatile session on Tuesday, led by a drop in materials and energy shares following further weakness in commodity prices.
The S&P 500 slipped under its 50-day moving average of 2,046 around midday, triggering weakness, while volume also picked up. All three indexes fell from session highs of more than 1 percent, with the S&P 500 moving more than 48 points from its high for the day to its low, its widest range since Oct. 15.
Shares of homebuilders fell 1.5 percent 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 dropped 16.3 percent to $13.87, its biggest percentage fall since 1992.
Shares of Freeport McMoran Copper & Gold slid 7.5 percent to $21.04, and were the S&P 500's biggest percentage decliner. The S&P materials index fell 1.2 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 tumbled to near six-year lows before recovering.
"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 to this nervousness," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
Large competing positions in the options market were cited for at least some of the early afternoon plunge. Todd Salamone, analyst at Schaeffer's Investment Research, said outsized bets on the index closing above the 2,050 level or below the 2,000 level by the end of the week effectively set off a wave of selling.
The S&P energy index was down 0.7 percent, with shares of Exxon Mobil down 0.4 percent at $90.
The Dow Jones industrial average fell 27.16 points, or 0.15 percent, to 17,613.68, the S&P 500 lost 5.23 points, or 0.26 percent, to 2,023.03 and the Nasdaq Composite dropped 3.21 points, or 0.07 percent, to 4,661.50.
The losses extended the recent decline to a third day. The S&P 500 is now down 3.2 percent since its Dec. 29 record high, with plunging oil prices and global economic weakness chief among the market's concerns.
Results have begun rolling in for U.S. quarterly earnings, though estimates have fallen sharply in recent months as oil prices sold off.
Goodyear Tire & Rubber stumbled 7.1 percent to $26.05 after the company estimated full-year operating income growth "slightly below" its forecast of 10 percent to 15 percent.
About 7.9 billion shares changed hands on U.S. exchanges, above the 7.2 billion average for the last five sessions, according to BATS Global Markets.
NYSE decliners outnumbered advancers 1,627 to 1,460, for a 1.11-to-1 ratio; on the Nasdaq, 1,393 issues fell and 1,326 advanced, for a 1.05-to-1 ratio favoring decliners.
The S&P 500 posted 57 new 52-week highs and 21 new lows; the Nasdaq Composite recorded 113 new highs and 105 new lows. (Additional reporting by David Gaffen; Editing by Nick Zieminski and Alan Crosby)