New home sales fall, durable goods orders weak

By Joanne Morrison

WASHINGTON (Reuters) - Sales of new U.S. homes dropped more than expected in June, while orders for long-lasting U.S.-made goods were weaker than analysts forecast, according to reports on Thursday that raised fresh concerns about the economy.

Major U.S. stock indexes ended down more than two percent on signs of further deterioration in the U.S. housing market, a jump in oil prices and a worsening climate for financing corporate takeovers. That caused the New York Stock Exchange to impose curbs on computer program trading.

The Dow Jones Industrial Average closed down 311 points and the Standard & Poor's 500 Index closed down 35 points.

U.S. government debt prices rose in a flight to quality, as investors continued to be worried about riskier assets, such as securities backed by subprime mortgages and stocks.

"The U.S. business sector may not be providing as much of a sturdy offset to the weak housing sector as expected," said Sherry Cooper, chief economist at BMO Capital Markets.

Orders for U.S.-made durable goods rose 1.4 percent in June, the Commerce Department reported, but they were below Wall Street expectations for a 1.8 percent gain, and a measure of business spending in the data fell unexpectedly.

Separate Commerce Department data showed continued weakness in the housing sector, with new single-family homes sales falling 6.6 percent in June to a lower-than-expected level leaving a bloated inventory of unsold homes.

Analysts were expecting to see a rise in economic output during the second quarter, primarily as businesses rebuilt inventories, but going forward growth is likely to moderate.

The Labor Department reported that claims for U.S. unemployment benefits fell unexpectedly by 2,000 last week to the lowest level since May.

But that employment figure did little to soothe investors considering the disappointing durable goods data in a climate of fear that credit could be drying up.

AIRCRAFT BOOSTS DURABLES

The rise in new orders for goods meant to last at least three years was lifted by an increase in nondefense aircraft orders. A 43 percent surge in new orders at Boeing was what helped boost overall durable goods orders, economists said.

But within that Commerce report, nondefense capital goods orders excluding aircraft -- seen as a good gauge of business spending -- fell 0.7 percent, well below economists' expectations for an 0.8 percent gain.

"The demand for big-ticket items was a mixed bag, which reflects the state of the economy," said Joel Naroff, president and chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Investors found some minimal solace in the Labor Department report showing initial jobless claims for state unemployment benefits fell for the third week to 301,000 in the week ended July 21 from 303,000 the prior week.