Sun, Nov 19, 2006 - Page 10 News List

US markets rise despite housing woes

WALL STREET Investors remained generally bullish, although a government report indicated that US housing starts tumbled 14.6 percent to a six-year low last month


The major US stock indexes closed higher compared with a week ago on Friday, but concerns about the nation's housing market mounted after a government report showed housing starts fell sharply.

In the week to Friday, the Dow Jones Industrial Average blue-chip index advanced 2.02 percent to 12,342.56, a record closing high.

The broad-market Standard & Poor's 500 gained 1.47 percent to 1,401.20 while the tech-rich NASDAQ rallied 2.36 percent to 2,445.86.

Although the markets were up on the week, as investors continue to remain generally bullish on corporate America, investor optimism was dented on Friday in the wake of government report that showed a sharp fall in housing starts last month.

US housing starts plunged to a six-year low to exacerbate fears for the outlook of the world's largest economy, according to statistics released on Friday.

New home construction projects tumbled 14.6 percent last month compared with September to a seasonally adjusted rate of 1.486 million units, the US Commerce Department said.

Some economists have started shaving back their forecasts for fourth-quarter economic growth as the housing downturn continues apace and amid concerns that this could have a knock-on-effect on consumer spending.

"Data in the past week have not been kind to our forecast. Both retail sales and housing starts were softer than expected and in response we cut our fourth quarter GDP forecast from 3.2 percent to 2.5 percent," Lehman Brothers economist Ethan Harris said.

"Despite the soft readings, we are not throwing in the towel on our fundamental view. We still believe that by the first quarter it will be clear that the economy is weathering the housing shock and we still expect core consumer price inflation to peak in the spring," Harris added.

Following a flurry of economic data in the past week, the coming week will be light on data. The week's main features will be a report on leading economic indicators and a separate release on consumer sentiment.

Trading activity will also be shortened in the coming week as the US markets will be closed on Thursday for the Thanksgiving public holiday

Most economists expect the index of future US economic activity, due to be released tomorrow, to post a 0.2 percent gain for last month following a 0.1 percent rise in the prior month.

September's gain in the index, which is compiled by the Conference Board, had been weaker-than-expected, partly as the housing slowdown acted as a drag on growth.

Wednesday will see the release of a revised University of Michigan reading on US consumer sentiment for this month. A preliminary reading pegged the index at 92.3, and economists expect the coming week's revision to lift that reading a shade to 93.0.

Bond prices were mixed over the week. The yield on the 10-year Treasury bond rose to 4.607 percent from 4.586 percent a week earlier, while that on the 30-year bond fell marginally to 4.691 percent against 4.692 percent.

Bond yields and prices move in opposite directions.

"Even though the stock market is doing better there is clearly a note of caution, as shown by the performance of the bond market which is very strong. Investors buy bonds when they are worried," said Hugh Johnson, an analyst with Johnson Illington Advisors.

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