UPDATE 1-Australian business activity best in 4 years, home prices jump

Mon Aug 11, 2014 10:58pm EDT

* Business activity, confidence jump in well-regarded survey

* Home prices climb 1.8 pct in Q2, up 10.1 pct for year

* Housing stock rises A$492 bln in value, supports spending power (Adds house prices, reaction)

By Wayne Cole

SYDNEY, Aug 12 (Reuters) - A measure of Australian business conditions hit the highest in four years in July as firms reported a sharp pick up in sales and profitability, a promising start to the third quarter after a couple of disappointing months.

There was also upbeat news for household wealth as Tuesday's data showed growth in home prices topped 10 percent in the year to June, adding a massive A$492 billion ($456 billion) to the value of Australia's housing stock.

National Australia Bank's survey of more than 400 firms showed its index of business conditions jumped 6 points to stand at +8 in July, the highest since early 2010.

Firms were also feeling more confident, with that index rising 3 points to +11 led by strength in home construction and retailing.

The survey's measures of sales and profitability both climbed sharply, while there was a more modest improvement in employment. The pick up in activity also looked to have legs with the index of forward orders rising 4 points to +5, well above its long-run average.

The improvement would be welcome news to the Reserve Bank of Australia (RBA) which has held interest rates at record lows of 2.5 percent for an entire year to support the economy as a long boom in mining investment fades.

The central bank is a close watcher of the NAB survey, which has a good track record as a leading indicator of economic activity.

"Firms still appear unfazed by the Federal government's 'tough budget', possibly taking comfort in the bounce back in consumer confidence," said NAB's chief economist, Alan Oster.

"A solid jump in business conditions and better forward orders is supporting the relatively optimistic position."

The Liberal National government of Tony Abbott announced an unpopular budget of cuts and tax increases in May that took a heavy toll on consumer sentiment.

The mood has brightened since as many of the budget's more controversial measures have been stalled in a divided senate.

Confidence also has been bolstered by steady appreciation in home prices, long an obsession among Australians. The Australian Bureau of Statistics reported residential prices rose 1.8 percent in the second quarter, from the first when they increased by 1.5 percent.

That was the fifth straight quarter of strong gains and left prices up 10.1 percent on June last year.

The ABS estimated the total value of dwellings in Australia at almost A$5.2 trillion, more than three times the country's annual gross domestic product (GDP).

The expansion of home values has helped support spending in the face of subdued wages growth, while also encouraging a major recovery in home building. (Reporting by Wayne Cole; Editing by Shri Navaratnam)

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