Good news boosts market

WASHINGTON -- New home sales hit a monthly all-time high, orders to U.S. factories for big-ticket goods dropped by a smaller-than-expected amount, and new claims for jobless benefits plunged, providing a dose of good news for the economy.

On Wall Street, the latest batch of economic data helped to lift blue chip stocks. The Dow Jones Industrial Average closed up 155.30 points at 7,997.12, its second straight triple-digit gain. The Standard & Poor's 500 index rose 15.29, or 1.8 percent, to 854.95.

However, tech stocks slipped when investors sold shares to lock in profits. The Nasdaq composite closed down 0.68, or 0.1 percent, to 1,221.61.

Analysts had expected Wednesday's market rally to be short-lived because of investor concerns about third-quarter earnings, the financial impact of a potential war in Iraq and the brittle economic recovery.

But the Commerce Department reported Thursday that sales of new homes climbed to a record seasonally adjusted annual rate of 996,000 in August, representing a 1.9 percent increase from July. That was a stronger performance than the drop of around 3.5 percent analysts were expecting.

Housing is one of the few bright spots in the economy. Low mortgage rates are enticing buyers. Rates on 30-year fixed-rate mortgages this week dropped to a new low of 5.99 percent, said Freddie Mac, the mortgage company. And rising home values, especially given the slumping stock market, make owning a house a good investment.

In August the average price of a new home rose 2.1 percent from the previous month to $221,000.

By region, new home sales in the West rose by 7.4 percent in August to a seasonally adjusted annual rate of 276,000. In the South, sales went up by 1.3 percent to a rate of 476,000. But in the Northeast, sales dropped by 9.5 percent to a rate of 57,000. And in the Midwest, sales were flat at a rate of 187,000.

In another Commerce Department report, orders for durable goods -- items expected to last at least three years -- dipped by 0.6 percent in August from the month before, reflecting slackened demand for cars, communications equipment and machinery.

The decrease -- which came after a 8.6 percent jump in July -- was smaller than the decline of more than 2 percent that many analysts were forecasting. That heartened some economists.

"Manufacturing's discontented summer may be history," said Joel Naroff, economist with Naroff Economic Advisors.

The manufacturing sector was hardest hit by last year's recession. To cope, the industry throttled back production and cut hundreds of thousands of workers. Although industry is back on its feet, manufacturing isn't bursting with vitality and has hit some rough patches.

Separately, the Labor Department reported that new claims for unemployment benefits plunged by 24,000 to 406,000, an encouraging sign for workers dealing with the lackluster job market.

Companies, whose profits took a hit during the recession and have yet to fully recover, have been reluctant to make big commitments in hiring and in capital spending, forces not only affecting manufacturing but also restraining the recovery.

Worried about the economy and the possibility of a war with Iraq, the Federal Reserve on Tuesday decided to hold interest rates steady at a 41-year low. But in a rare move, two members dissented, saying they favored a rate cut, which would have been the first this year. Against this backdrop analysts say expectations are rising that the Fed might cut rates at its next meeting in November.

At the Fed's previous meeting on Aug. 13, policymakers decided to leave rates unchanged, but said if economic conditions worsened, a rate cut might be needed, according to meeting minutes released Thursday.

"To be sure, a further significant weakening in economic prospects -- for example -- that might be associated with additional deterioration in financial markets might well call for a policy response," the Fed minutes said.

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