Housing Construction Falls to Lowest Level on Record
World stocks lost some earlier gains Tuesday after an unexpected drop in U.S. home construction stirred worries about the economy.
In afternoon European trading, Britain’s FTSE 100 was up 0.25 percent at 4,457.36, Germany’s DAX rose 1.5 percent to 4,926.38, and France’s CAC 40 added 0.3 percent at 3,254.78.
Wall Street opened slightly lower. The Dow Jones industrial average was down 0.2 percent at 8,485.84, and the Standard & Poor’s 500 index lost 0.2 percent at 907.92.
Asia had closed higher and European markets had earlier risen by at least 1 percent on the back of upbeat news about U.S. housing and banks and a sharp improvement in German investor sentiment.
But data showing that U.S. housing construction fell to a record low in April dashed some hopes that the property market has hit bottom. Many analysts see a recovery in housing from its three-year slide as necessary before the economy can begin to rebound.
The Commerce Department reported that construction of homes and apartments fell 12.8 percent last month to a seasonally adjusted annual rate of 458,000 units, the lowest pace on records going back a half-century.
Still, financial stocks remained higher, helped by news that Goldman Sachs and Morgan Stanley have formally asked the U.S. Federal Reserve for permission to repay a combined $20 billion in federal bailout money. Oil companies were helped as crude oil traded above $59 a barrel.
Sentiment was also buoyed by better-than-expected earnings from home improvement chain Home Depot and its competitor Lowe’s a day earlier as well as a seventh consecutive monthly rise in Germany’s ZEW business confidence indicator.
In Germany, the ZEW indicator of investor expectations improved more than expected — to 31.1 points in May from 13.0 points the previous month. Although it rose from historically low levels, it edged above its own long-term average.
Jennifer McKeown, European economist at Capital Economics in London, said the figure was better than expected and “confirms that investors expect economic conditions to improve, but only from an extremely weak starting point.”
She noted that views of current economic conditions continued to slide. “Rising optimism has yet to translate into an actual improvement.”
Meanwhile, shares in Bank of Ireland jumped 23 percent after reporting a 97 percent plunge in full-year profits which was nevertheless better than analysts’ grim expectations.
In Britain, mining companies such as Anglo American gained as much as 6 percent. The biggest loser was retailer Marks & Spencer, whose shares were 10.5 percent lower after it reported a 38 percent drop in full-year profits due to intense competition and price cuts.
Andrew Orchard, Asia strategist for Royal Bank of Scotland in Hong Kong, said Tuesday’s rise in equities was forcing even those who don’t believe in an economic recovery to reconsider their investment strategies.
“I’m still not convinced of a longer-term recovery, although I do think this rally can continue for several months,” he said. “As the markets continue to pick up, more people have to invest, whether they believe in the recovery or not.”
In Asia, Japan’s Nikkei 225 stock average rose 251.60 points, or 2.8 percent, to 9,290.29, with some investors cautious ahead of the release of gross domestic product data on Wednesday. Hong Kong’s Hang Seng climbed 521.12, or 3.1 percent, to 17,544.03. South Korea’s Kospi closed up 3 percent at 1,428.21.
In India, where stocks surged 17 percent the day before after the results of national elections, the Sensex added another 2.7 percent. The Shanghai index gained 0.9 percent, Australia’s stock measure was 2.2 percent higher and Taiwan’s market rose 1.2 percent.
In oil markets, the benchmark crude contract for June delivery rose 26 cents to $59.29 in European trade. On Monday, the contract jumped $2.69 to settle at $59.03.
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AP writers Carlo Piovano in London and Jeremiah Marquez in Hong Kong contributed to this report.
5/19/2009 10:15 AM LOUISE WATT Associated Press Writer LONDON