UPDATE 1-US housing starts, permits hit record lows in April

(Adds details, market, analyst reaction)

WASHINGTON, May 19 (Reuters) - New U.S. housing starts and permits unexpectedly fell to record lows in April, a government report showed on Tuesday, denting hopes that stability in the housing market was imminent.

The Commerce Department said housing starts fell 12.8 percent to a seasonally adjusted annual rate of 458,000 units, the lowest on records dating back to January 1959, from March’s upwardly revised 525,000 units.

“It obviously calls into question the notion that the housing market is stabilizing,” said Brian Dolan, chief currency strategist at in Bedminster, New Jersey.

Compared to the same period last year, housing starts tumbled 54.2 percent. Analysts polled by Reuters had expected an annual rate of 520,000 units for April.

U.S. stock index futures pared gains after the data. Government bond prices extended losses despite the weak report.

Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey, said the weak housing starts data was “not encouraging.”

However, he noted that the drop in building permits, which also fell to record lows, could set the stage for a housing rebound later.

“The first step to healing the housing sector is to eat into inventory. There is so much inventory on the market that the sooner we stop building and start eating into existing inventory the better off we’ll be,” he said.

New building permits, which give a sense of future home construction, dropped 3.3 percent to 494,000 units, the lowest since records started in January 1960, from 511,000 units in March.

That was well below analysts’ forecasts of 530,000 units. Compared to the same period a year-ago, building permits plunged 50.2 percent.

A National Association of Home Builders survey on Monday showed U.S. home builder sentiment surged to an 8-month high in May, with industry leaders hopeful the three-year housing slump was nearing a bottom and market stability around the corner.

Collapsing domestic home prices and the resultant global credit crisis pushed the U.S. economy into recession in December 2007 and restoring stability to the housing market is a key element to a recovery in the economy.

Building completions rose 4.9 percent to 874,000 units, Tuesday’s data showed.

Meanwhile, aggressive cost-cutting helped Home Depot Inc HD.N, the word's largest home improvement chain, to report on Tuesday a bigger-than-expected profit in the latest quarter despite the deep U.S. housing slump. [ID:nN19544666]

The news followed by a day stronger-than-expected results from rival Lowe's Cos Inc LOW.N that pushed up shares of both chains on Monday. Both Home Depot and Lowe's had been hurt by the housing slump. (Reporting by Lucia Mutikani, Additional Reporting by Steven C. Johnson and Ryan Vlastelica in New York, Editing by Andrea Ricci)