U.S. home sales surged in June, a sign the U.S. housing market may have hit bottom and is starting to rebound, but two big U.S. companies, diversified manufacturer Honeywell and health insurer Aetna, saw economic weakness continuing.
The mixed signals on the U.S. economy followed data showing loans to private businesses and homes in the European Union grew at their slowest annual pace on record in June, a negative sign for the world economy.
European stocks climbed to the highest level in more than eight months, while U.S. stocks rose slightly as disappointing corporate results ended a two-week rally that had lifted all major U.S. indexes about 11 percent.
Sales of new single-family homes in the United States rose 11 percent in June, the largest monthly rise since 2000, while the inventory of homes for sale fell to an 11-year low, the Commerce Department reported.
The rising sales are an indication the housing sector, which led the United States into the longest recession since the Great Depression of the 1930s, may have put the worst of the crisis behind it and the U.S. economy may be pulling out of its deep slump.
The data will reinforce the developing thinking that the housing market has bottomed and that the economy has stabilized and will grow in the third quarter, said Jim Awad, managing director at Zephyr Management in New York.
In the cocktail of the market, it will be viewed positively and will add credence to the bulls, who think we will have a rebound in the markets going forward, he said.
FINANCIAL STOCKS UP
U.S. stocks opened lower on reduced outlooks from Honeywell Inc (HON.N) and Aetna Inc (AET.N), but turned positive on the good housing news and finished with a small gain as investors bought bank shares that had lagged in the recent rally.
The better-than-expected data on new home sales underpinned financial stocks, as investors snapped up the shares of several regional banks, which had been among the worst hit by credit losses tied to a weak housing market.
The Dow Jones industrial average .DJI was up just 15.27 points, or 0.17 percent, to finish unofficially at 9,108.51. The Standard & Poor's 500 Index .SPX was up 2.92 points, or 0.30 percent, closing at 982.18. The Nasdaq Composite Index .IXIC was up 1.93 points, or 0.10 percent, at 1,967.89.
Honeywell, the world's largest maker of cockpit electronics, reported a 38 percent drop in earnings, cut its full-year profit forecast and said the recession was matching up to its worst expectations.
Shares of No. 3 U.S. health insurer Aetna shed 2.7 percent to $25.72 after the company, one of the biggest U.S. providers of employer-based health insurance, cut its outlook, citing higher-than-projected medical costs.
Honeywell said the outlook remains cloudy, setting the stage for a mixed session today, said Peter Cardillo, chief market economist at Avalon Partners in New York. The market has come up rather sharply, so obviously it is poised for some profit-taking.
The U.S. dollar fell to its lowest level in more than seven weeks against a basket of currencies as the jump in U.S. new home sales encouraged investors to take on more risk and dimmed the greenback's safe-haven appeal.
EU STOCKS 8-MONTH HIGH
In Europe, stock markets gained ground on mounting optimism over a recovery in corporate profits that has fueled the sharp two-week rally on stock markets worldwide.
European equities climbed to the highest level in more than eight months on Monday as a better-than-expected earnings season improved sentiment.
Yet loans to euro-zone businesses and households grew at the slowest annual pace on record in June, European Central Bank data showed on Monday, with weak demand from companies and households eating into growth.
Annual loan growth to the private sector slowed to 1.5 percent in June from 1.8 percent in May, the lowest level since data series began in 1992. Economists believe this is due to subdued demand rather than a credit crunch. [nLR234743]
In Britain, corporate credit conditions improved in the second quarter of the year, partly as a result of asset purchases by the Bank of England, the central bank said. [nLR154913]
Buoyant energy stocks and miners helped Britain's top share index rise for a record-equaling 11th straight session, though gains were limited by falls on Wall Street. LR318956
The FTSE 100 .FTSE was up 9.52 points or 0.2 percent at 4,586.13, hitting its highest closing level since January 5.
The index has risen 11 percent over the past two weeks on reassuring U.S. corporate earnings results, and is up 32.5 percent since hitting a six-year trough in March.