U.S. home sales, goods orders feed recession fears

WASHINGTON (Reuters) - Sales of new U.S. single-family homes slumped to a 13-year low in January and demand for long-lasting goods declined more than expected, government data showed on Wednesday, fueling fears of a recession.

The reports, which came as U.S. Federal Reserve Chairman Ben Bernanke testified to Congress on the health of the U.S. economy, bolstered expectations for more interest rate cuts when the central bank's policy-setting committee meets next month.

New single-family home sales fell 2.8 percent in January to an annual rate of 588,000, the lowest since February 1995, the Commerce Department said. Economists had expected a 600,000 rate.

In addition, the median sales price dropped a record 15.1 percent from its year-ago level.

"If any more evidence of weakness in the (housing) sector was needed, you have it in the 15.1 percent drop in the median price," Goldman Sachs economists wrote in a note to clients.

Bernanke said many of the troubles now facing the economy stemmed from the housing slide, although he thought its impact on U.S. economic growth would likely fade later this year as home construction stabilizes.

He said the Fed would "act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," a phrase Wall Street read as a signal of more rate cuts.

The economic data weighed on U.S. stock markets, but they recovered to end the session little changed after a federal regulator said it would allow the two biggest U.S. home loan finance companies -- Fannie Mae (FNM.N) and Freddie Mac (FRE.N) -- to invest more money in the housing sector, a move that could help put a floor under the free-falling market.

Prices for Treasury bonds ended the session mixed, tracking stocks, while the dollar slumped to a record low against the euro as traders braced for lower interest rates.

Bernanke said risks remain that the economy would slow more dramatically than the Fed expects, even as steep food and fuel prices boost inflation.

"What came out loud and clear in this testimony is that the Fed has become increasingly concerned about negative dynamics in the housing market and mounting stresses in the financial system," said Brian Bethune, U.S. economist with Global Insight.

DURABLE GOODS DEMAND DROPS

In a separate report, the Commerce Department said orders for long-lasting U.S.-made manufactured goods fell 5.3 percent in January, the biggest drop in five months and more than Wall Street had expected. A key gauge of business spending also declined, though the 1.4 percent drop was less than the 2 percent decrease economists had forecast.

"The data suggest that capital spending is stalling, and possibly receding, in the first quarter as weak domestic demand starts to overshadow still-healthy foreign sales," said Sal Guatieri at BMO Capital Markets.

"Businesses cut payrolls at the start of the year, so it's unlikely that they boosted capital spending, especially with the economic climate souring by the day," he said.

Still, some economists took solace in the fact that shipments rose, perhaps a sign of continued strength in U.S. exports, which has benefited from a weak dollar. That should buffer the economy, even as domestic demand ebbs.

"The U.S. economy has entered a period of very sluggish growth," said Harm Bandholz, economist at UniCredit in New York. "A weaker profit outlook and tighter access to credit will dampen business fixed investment throughout the entire year. But we still do not think that the U.S. economy will fall into an outright recession."

(Additional reporting by Patrick Rucker, Alister Bull, Mark Felsenthal and David Lawder; Writing by Emily Kaiser; Editing by Neil Stempleman)