US STOCKS-S&P 500 inches up after string of declines

* Homebuilders rise after data shows continued price gains

* Washington's budget squabbles expected to spark volatility

* Applied Materials (NasdaqGS: AMAT - news) shares rise on merger with Tokyo Electron

* Facebook (NasdaqGS: FB - news) leads Nasdaq on report it could be allowed in China

* Dow down 0.1 pct, S&P up 0.1 pct; Nasdaq up 0.4 pct

By Caroline Valetkevitch

NEW YORK, Sept 24 (Reuters) - The S&P 500 was barely higher on Tuesday and on track to end a three-session losing streak after housing data pointed to a slowly improving economy, but gains were limited by concern over budget negotiations in Washington.

Earnings results also boosted homebuilders' shares. Lennar gained 5.5 percent to $36.43 after the No. 3 U.S. homebuilder reported a better-than-expected quarterly profit, while KB Home (NYSE: KBH - news) rose 5 percent to $17.89, also after results.

The earnings, coupled with the economic data, helped the PHLX housing sector index climb 2.9 percent.

Though uncertainty remained over the Fed's intentions to scale back its stimulus, the focus has shifted somewhat to economic data. The Fed decided last week to leave its stimulus program as is.

"Maybe people are taking a longer-term look. I think that's healthy," said Scott Armiger, chief executive officer of Christiana Trust in Greenville, Delaware.

In Washington, Tea Party-backed U.S. senators, threatening to stall a bill to fund the U.S. government, ran into a wall of resistance from top Senate Republicans, including Minority Leader Mitch McConnell.

The refusal by Senate Republican leaders to go along did not remove the chance of a government shutdown. Signs still pointed to a frantic last-minute showdown that will determine whether the U.S. government stays open next week. Republicans want to cancel funding for "Obamacare," President Barack Obama's healthcare law.

The Dow Jones industrial average was down 16.17 points, or 0.10 percent, at 15,385.21. The Standard & Poor's 500 Index was up 0.76 points, or 0.05 percent, at 1,702.60. The Nasdaq Composite Index was up 13.89 points, or 0.37 percent, at 3,779.18.

The S&P 500 index posted a third session of losses on Monday, its longest losing streak in a month and only the fifth time this year the index has suffered such an extended decline.

While many on Wall Street expected an eventual government shutdown to be short and not affect markets deeply, volatility was expected.

U.S. home prices rose 0.6 percent in July on a seasonally adjusted basis, the S&P/Case Shiller composite index of 20 metropolitan areas showed. That was a slightly slower pace than forecast but a separate report from the U.S. Federal Housing Finance Agency showed U.S. home prices rose 1 percent.

In other economic news, a dip in consumer confidence reflected the potential impact that higher interest rates and a sluggish economy could have on the housing market.

Facebook shares led the Nasdaq higher, up 4.2 percent to $49.17 after the South China Morning Post reported the online social media giant and other websites deemed sensitive and blocked by the Chinese government will be accessible in a planned free-trade zone in Shanghai. In addition, Citigroup (NYSE: C - news) upgraded the stock to a "buy" rating.

Shares of Applied Materials jumped 8.6 percent to $17.37 after the chipmaker and Tokyo Electron Ltd said they will merge in an all-stock deal, creating a $29 billion company.