US STOCKS-Wall St gains on housing but rally ebbs

Tue May 22, 2012 12:45pm EDT

* Facebook shares hit again; off 20 pct from IPO price

* U.S. April existing home sales up 3.4 pct, above forecast

* Fitch cuts Japan debt rating, outlook negative

* Dow up 0.3 pct, S&P 500 up 0.6 pct, Nasdaq up 0.3 pct

By Edward Krudy

NEW YORK, May 22 (Reuters) - Financial and housing shares nudged Wall Street higher on Tuesday after U.S. existing home sales rose in April to their highest rate in nearly two years, but gains were capped by investors' concerns about the global economic outlook.

Shares of Facebook Inc fell as much as 9 percent at the open and hurt sentiment about tech shares as doubts about the company's valuation increased after Reuters reported that Morgan Stanley, the lead underwriter, cut revenue forecasts for the social networking site shortly before the IPO.

Sales of existing U.S. homes rose sharply in April and a falloff in foreclosures pushed prices higher - welcome signs for investors worried about the strength of the U.S. recovery after recent weaker-than-expected economic data helped drive a pullback in stock prices.

The news benefited banking and housing stocks. The S&P 500 financial sector index shot up 1.5 percent, with Bank of America Corp up 3.5 percent at $7.07. The Dow Jones U.S. home construction index gained 2.2 percent.

A note of caution was sounded by Richard Ross, a technical analyst at Auerbach Grayson in New York, who said the rally in the U.S. stock market was in question as long as it goes unconfirmed by commodities, emerging markets and the euro currency. At midday on Tuesday, U.S. crude oil futures, gold and the euro were all down sharply for the day so far.

"The fact that the U.S. and Europe have been able to gather themselves for a little two-day rally doesn't necessarily excite me," he said, referring to stocks' modest gains on both sides of the Atlantic. "People's predisposition to continue to buy dollars here is telling you that 'risk off' is still out there in force."

The Dow Jones industrial average was up 42.00 points, or 0.34 percent, at 12,546.48. The Standard & Poor's 500 Index was up 7.35 points, or 0.56 percent, at 1,323.34. The Nasdaq Composite Index was up 7.73 points, or 0.27 percent, at 2,854.94.

The S&P 500 has bounced for the last two days after a six-day slide that found support at the 1,290 level, which coincides with the benchmark index's 10-month moving average.

"S&P 500 is bouncing near 1,290 support, aided by deeply oversold momentum," said Ari H. Wald, an analyst at Brown Brothers Harriman & Co. "But some measures of downside intensity suggest market conditions could get worse before they get better."

Shares of Facebook fell as much as 8.9 percent to a new session low of $30.98 shortly after the open. At Tuesday's session low, the stock was down nearly 20 percent from its IPO price just two trading days after its market debut. At midday on Tuesday, Facebook was down 3.8 percent at $32.76.

On the earnings front, Best Buy Co Inc reported better-than-expected quarterly results, bolstered by a lower tax rate and an extra week as the world's largest consumer electronics chain closes stores and searches for a new chief executive. Best Buy's stock was up 1.6 percent at $18.46.

Underscoring the debt problems that governments around the world are facing, Fitch cut Japan's sovereign credit rating on Tuesday as a political stalemate dims the chance that the country can curb its snowballing debt.

Fitch lowered Japan's long-term foreign currency rating to A plus from AA. It cut the local currency rating to A plus from AA minus. Both were cut with a negative outlook.

The Paris-based Organization for Economic Co-operation and Development also forecast that global growth would ease to 3.4 percent this year from 3.6 percent in 2011.

Nasdaq OMX Group faces short-term costs from its botched handling of Facebook shares on their first day of trading on Friday, but longer-term repercussions could be more expensive as it struggles to restore its image. Nasdaq OMX shares slid 0.8 percent to $22.59.

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