Soft U.S. home sales knock stocks, dollar lower

By David McMahon

NEW YORK (Reuters) - U.S. stocks and the dollar declined on Monday while Treasury bonds rallied after an unexpectedly weak report on U.S. new-homes sales reinforced a view that the Federal Reserve will cut interest rates.

U.S. crude oil futures rose to their highest this year to date, boosted by renewed tensions over Iran's nuclear program and the capture of British military personnel by Iran.

Led by a decline in the shares of home builders, U.S. stock prices fell sharply after a government report showed sales of new U.S. homes fell to the lowest rate in almost seven years in February.

"This disappointing number highlights the ongoing risk of slower housing activity on the broader economy," said Alex Beuzelin, senior market strategist at Ruesch International in Washington D.C.

The number "adds greater traction to the idea that the Fed's next move will be an interest rate cut," he said.

The Standard & Poor's 500 index .SPX was trading down 0.78 percent at 1,424.87. All 16 component stocks of the Dow Jones U.S. home builder index .DJUSHB declined, led by a drop of more than 2.5 percent in Champion Enterprises (CHB.N: Quote, Profile, Research, Stock Buzz).

The Dow Jones industrial average .DJI was down 0.67 percent at 12,396.06

The Nasdaq Composite Index .IXIC fared slightly better, declining 0.64 percent to 2,433.48 and gaining some support from a rally of more than 2 percent in the shares of Dell Inc. (DELL.O: Quote, Profile, Research, Stock Buzz), which rose after a ratings upgrade by Goldman Sachs.