TOPWRAP 2-U.S. home sales signal worst could be over

* U.S. new home sales up 11 pct in June

* World stocks edge higher as U.S. stocks pause

* FTSE 100 equals record 11th-day winning run

* Euro gains vs dollar on stronger risk appetite
(Updates with U.S. stock prices close)

By Anthony Boadle

WASHINGTON, July 27 (Reuters) - 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. (For details, see
[ID:nN27478623])

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. [nN27503383]

"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. [ID:nN27511465]

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. [ID:nLR192377]

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-equalling 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 Jan. 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.
(Reporting by Reuters correspondents worldwide, editing by
Matthew Lewis)