(Reuters) – Home prices picked up in April for the third month in a row, the latest indication that a recovery in the housing market is gaining traction.

But in a sign of the struggles still facing the broader economy, separate data on Tuesday showed consumer confidence fell to its lowest level in five months in June as Americans’ expectations on the economy soured.

The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.7 percent on a seasonally adjusted basis, topping economists’ expectations for a 0.4 percent gain.

Compared to a year ago, home prices fell 1.9 percent in the 20 cities, above expectations for a decline of 2.5 percent, and an improvement from the 2.6 percent annual decline seen in March.

Six years after the housing market’s far-reaching collapse that sent prices down more than 30 percent, recent data suggests the sector has finally hit bottom with leaner inventories and record-low mortgage rates encouraging buying.

“The housing recovery in this cycle has been painfully slow to develop, but it is unmistakably here,” said Chris Low, chief economist at FTN Financial in New York.

April’s gain made for the longest streak of consecutive monthly gains since prices were boosted by the homebuyer tax credit from mid-2009 into early 2010.

“This time, unlike 2010 when the first-time homebuyer tax credit lifted sales, it is happening with only limited help from the government,” said Low.

Still, the housing market has a long way to go before full recovery as it faces a large pipeline of foreclosures, tight credit restrictions and weak demand.

“The healing continues and we will eventually find ourselves with a normal-looking housing market,” said Eric Lascelles, chief economist at RBC Global Asset Management in Toronto.

“It’s still very much a multi-year process, but it’s heartening to see those home prices start to go up.”

Robert Shiller, co-creator of the S&P/Case Shiller index, was less convinced than some that it was a definitive sign prices have stabilized, saying it was encouraging but still too soon to tell.

“They’ve been falling for six years now, and people have been asking me this question for six years, and there’s always this sense that it’s about to turn up,” Shiller told Reuters Insider.

“Now I think we have a better real possibility that it actually will turn up.”

Even as the housing market is firming, the broader economy is struggling under the weight of a sluggish labor market and fears over the fallout of Europe’s debt crisis.

The Conference Board, an industry group, said its index of consumer attitudes fell to 62.0 from a downwardly revised 64.4 in May, falling short of economists’ expectations. It was the lowest level since January.

While consumers’ assessment of their current situation improved, they were less upbeat about their expectations for the next six months. Fewer respondents expected business conditions or employment would improve in the coming months.

“It’s the future they’re more scared about, and I can’t say I disagree with that concern given European problems, fiscal cliffs and all the various challenges that will present over the next six months,” said Lascelles.

The consumer confidence index is down nearly 10 points from the peak hit in February. Consumer spending — a major engine of economic growth during the housing boom — accounts for about 70 percent of U.S. economic activity.

Ian Shepherdson, chief U.S. economist at High Frequency economics, said that the expectations measure is sensitive to both the stock market and gasoline prices, but the time lags make it unclear whether the gloomier attitudes reflect a decline in stocks or the rise in gasoline at the beginning of the year.

“Either way, we don’t see much further downside, given that stocks have rebounded a bit this month while gasoline prices have plunged,” said Low.

Analysts expect the economic recovery will continue at a sluggish pace after growing at a 1.9 percent rate in the first quarter. Standard & Poor’s said the United States faces 20-percent odds of falling back into recession, although a slow recovery is still the ratings agency’s baseline forecast.

S&P cut the U.S. debt rating to AA-plus last year.

With the labor market disappointingly weak, the Organization for Economic Cooperation and Development gave a warning on the impact of long-term joblessness, saying it risks leaving a lasting scar of higher unemployment on the U.S. economy.

Financial markets saw little reaction to the data as investors had their attention on Europe ahead of a summit of leaders later this week.

Manufacturing activity in the central Atlantic region contracted in June, a report from the Federal Reserve Bank of Richmond showed.

Other regional manufacturing surveys, including New York and Philadelphia, also showed weakness this month, boding poorly for the national report on manufacturing due in early July.

(Additional reporting by Anna Louie Sussman and Chris Reese; Editing by Chizu Nomiyama)

(Reuters) – U.S. stocks edged up in volatile trade on Tuesday after the prior session’s selloff, but gains were seen as fragile before a European Union summit on the debt crisis this week.

All three major U.S. stock indexes rose after seesawing between gains and losses throughout morning trade. On Monday, the S&P 500 fell 1.6 percent, creating buying opportunities, but concerns raised by a jump in Spanish borrowing costs and weak U.S. consumer sentiment data kept investors away from stocks in morning trading.

“This is a classic exhaustion rebound. The selling intensity was pretty high yesterday, and technically, we were due for a short-term rebound,” said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

“But these gains are really unsustainable. I think we have entered the bear market cycle already, and these (gains) could disappear any minute.”

Spain’s short-term borrowing costs nearly tripled at auction when the country sold 3.08 billion euros of its short-term debt, as the Treasury paid the highest rates to sell the paper since November.

Trading is expected to be volatile ahead of a two-day summit of European Union leaders that begins Thursday. Although investors do not have high hopes, any progress made at the meeting in terms of heightening cooperation to tackle the region’s 30-month long debt crisis could bring back appetite for risky assets.

U.S. consumer confidence fell to its lowest level in five months in June, the Conference Board industry group said, but separate housing data showed home prices picked up for a third month in a row in April, suggesting recovery is gaining traction in the sector.

The Dow Jones industrial average .DJI was up 30.99 points, or 0.25 percent, at 12,533.65. The Standard & Poor’s 500 Index .SPX was up 6.39 points, or 0.49 percent, at 1,320.11. The Nasdaq Composite Index .IXIC was up 15.71 points, or 0.55 percent, at 2,851.87.

Finance chiefs of the euro zone’s four biggest economies will hold last-minute talks in Paris on Tuesday evening to discuss managing the crisis.

According to a document prepared for the meeting, European leaders will discuss specific steps toward a cross-border banking union, closer fiscal integration and the possibility of a debt redemption fund.

JPMorgan Chase & Co (JPM.N) rose 1.4 percent to $35.83 as one of the top boosts to both the Dow and S&P after Goldman Sachs added the bank to its conviction buy list.

Goldman also downgraded Morgan Stanley (MS.N) to “neutral” from “buy,” and removed the stock from its conviction buy list, saying earnings could be hurt by muted capital markets activity. The stock edged up 0.9 percent to $13.60.

Rupert Murdoch’s News Corp (NWSA.O) said it was considering splitting into two publicly traded companies, and sources familiar with the matter said publishing would be separated from entertainment. Its shares jumped 6.2 percent to $21.35.

(Reporting By Angela Moon, editing by Kenneth Barry)

(Reuters) – Photography retail chain Ritz Camera & Image LLC filed for bankruptcy protection in a U.S. court early on Friday, less than three years after it emerged from its first bankruptcy.

The company, which was founded in 1918, was bought in a bankruptcy auction in 2009 by a group led by its top executive.

RCI, the group that included Ritz Camera President David Ritz, had entered a winning bid worth about $33.1 million for the chain’s 375 stores.

David Ritz is the second generation of his family to run the company and had expanded the business with a series of acquisitions.

Last August, Los Angeles-based private equity firm Transom Capital Group said it had provided capital to the company.

The filing is among several companies that have filed for a “Chapter 22” petition this year. Twinkie maker Hostess Brands and family-style restaurateur Buffets Inc, are repeat filers.

The Beltsville, Maryland-based Ritz, which operates nearly 300 stores in 34 states, listed assets and liabilities of between $50 million and $100 million.

Its largest unsecured creditors include Nikon Inc, Sony Corp of America, Fuji Photo North America Corp, among others.

The case is In re: Ritz Camera & Image LLC, U.S. Bankruptcy Court, District of Delaware, No:12-11868.

(Reporting by Tanya Agrawal in Bangalore; Editing by Supriya Kurane)

(Reuters) – Stocks rose on Friday as gains in banking shares helped the S&P 500 index rebound from its second-worst decline of the year.

The index dropped 2.2 percent on Thursday, its biggest drop since a 2.5 percent fall on June 1, as evidence mounted of slowing manufacturing growth worldwide.

“The market oversold yesterday so you’re definitely getting a bounce off an overreaction,” said Janna Sampson, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

Bank shares, among the worst hit Thursday, rose after ratings agency Moody’s lowered credit ratings on the world’s top banks by one to three notches to reflect their risk of losses from volatile capital market activities.

“Banks sold off pretty badly yesterday,” Sampson said. “The market doesn’t think there’s anything new in the Moody’s downgrade. Credit rating agencies are lagging the market in their information.”

Morgan Stanley (MS.N) added 2 percent to $14.25, more than offsetting its 1.7 decline Thursday. The KBW Bank index .BKX gained 0.9 percent.

Equities volume is expected to spike at the close, just before Russell Investments sets the final rebalance of its indexes, to which $3.9 trillion in assets are benchmarked globally.

Facebook shares (FB.O), which Russell named in its preliminary list of additions to the Russell 3000 index .RUI, have rallied more than 21 percent in the last two weeks. They were up 3.2 percent to $32.87 on Friday.

The S&P 500 index is down 0.9 percent for the week, but remains on track for its first monthly gain since March.

The Dow Jones industrial average .DJI rose 54.12 points, or 0.43 percent, at 12,627.69. The Standard & Poor’s 500 Index .SPX was up 4.71 points, or 0.36 percent, at 1,330.22. The Nasdaq Composite Index .IXIC was up 16.39 points, or 0.57 percent, at 2,875.48.

Darden Restaurants Inc (DRI.N) fell 1.5 percent to $49.61 after the operator of Olive Garden and Red Lobster restaurant chains reported sales that missed estimates and forecast weaker-than-expected profits.

Ryder Systems Inc (R.N) slumped 13.1 percent to $35.40 after the logistics company cut its quarterly earnings forecast, amid lower demand for its commercial rental services.

(Editing by Bernadette Baum and Dan Grebler)

(Reuters) – In January, BlackRock Inc made a significant, but easy-to-miss change in the fund literature for three of its mutual funds.

In previous prospectuses, the New York-based firm said a “proprietary multi-factor quantitative model” formed the investing strategy for its $3.7 billion Large Cap Series funds, managed by retiring Chief Equity Strategist Bob Doll.

This year’s fund literature said the investing model used “quantitative factor models generated by third-party research firms.”

Typically such a change indicates a shift in a fund’s methodology. But there was no shift in the investment process.

Instead, the new description came after the funds’ board of directors learned that the investment models used for Doll’s funds were never proprietary and had been based on other firm’s models, according to two people familiar with the situation. Doll was not the one who alerted the company about the issue, they said. The two people did not want to be identified because they were told about the situation in confidence.

Doll is the lead manager of the BlackRock Large Cap Growth Fund, Large Cap Value Fund and Large Cap Core Fund.

The change was made just months before 57-year-old Doll, a regular on CNBC who is best known for his annual predictions and perennial bullish outlook, announced his retirement. Doll’s last day is June 30.

Bobbie Collins, a BlackRock spokeswoman, said in an e-mailed statement that the change in language came about in the “regular process of keeping the board up to date on fund management.”

She said the firm changed the prospectus “in order to provide more detail about how the model functioned and the methods used to construct the portfolio.”

The change is significant because investors who thought they were buying an all-Bob Doll investing strategy were actually getting a mix of off-the-shelf models that he then tweaked.

Some investors may have invested with Doll specifically because they believed the entire process was his own, said Russ Kinnel, director of mutual fund research at Morningstar Inc.

In response to questions from Reuters, Doll said in an e-mailed statement that he had used a mix of several third-party models for many years.

“In some cases, I had the models customized for us to reflect my view of key input factors,” Doll said. “I then applied a relative weighting to these models. We used these outputs as one part of my investment process, which also included a fundamental analysis.”

For the past one, three, five and 10 years, the three funds have underperformed their benchmarks, according to Lipper.

PROPRIETARY VS. THIRD PARTY

In quantitative equity investing, managers use models, or screens, to choose stocks for their portfolios.

Calculations for the models can include everything from valuation, risk or how much cash a company returns to investors, and – in some cases – quantitative models include complex behavioral finance attributes.

Fund managers can create their own or buy third-party models, which are usually produced by research firms.

Daniel Celeghin, a partner at Casey Quirk & Associates, a Darien, Connecticut-based consultant, said there is often a bias among money managers against buying third-party models.

“Most buyers would (ask) ‘If this model is really good, why aren’t they keeping it for themselves?'” he said.

Even so, most quantitative equity fund managers who buy third-party models tailor them to meet the needs of their portfolios. That can lead to ambiguity about what is – and is not – proprietary, fund experts said.

“(Managers) can use the inputs, or models, as a small part of that process or a meaningful part,” said Vadim Zlotnikov, chief market strategist at Bernstein Research, who said he was not aware of the BlackRock situation.

A fund board signs off on each fund’s registration statement – which includes details on its investment strategies and methodologies – attesting to its accuracy. It is the fund manager’s responsibility to keep the board informed of details of the strategies and investment process.

From an investor’s perspective, “the fact that the funds were using third-party models is not that big a deal,” said Jeff Tjornehoj, head of research at Lipper. “But from a (fund) board perspective I could see why it would be important to disclose who owns what when it comes to the research.”

(Reporting By Jessica Toonkel; Editing by Jennifer Merritt, Walden Siew and Dan Grebler)

(Reuters) – Spain’s medium-term borrowing costs spiraled to a euro-era record on Thursday and independent auditors said Spanish banks may need up to 62 billion euros in extra capital, to be filled mostly by a euro zone bailout.

Euro zone finance ministers met in Luxembourg to discuss how to channel up to 100 billion euros ($126 billion) in aid to Spanish lenders weighed down by bad debts from a burst property bubble. The bailout was first agreed two weeks ago, but details of exactly how much is needed and how it will be distributed are still being hammered out.

Many in the markets see the package as a mere prelude to a full program for the Spanish state, which Madrid vehemently denies it will need.

“We have already started working on the design of the aid with the Commission, the European Central Bank and the International Monetary Fund,” Spanish Economy Minister Luis de Guindos told reporters as he arrived for the talks. “We will present the request in the next few days.”

Spain’s financial plight took centre stage a week before a European Union summit tackles long-term plans for closer fiscal and banking union in a bid to strengthen the euro’s foundations, after bailouts for Greece, Ireland and Portugal failed to end a 2-1/2-year old debt crisis.

To pave the way, the leaders of Germany, Italy, France and Spain will meet in Rome on Friday.

Two independent audits by consultants Roland Berger and Oliver Wyman found that Spanish banks would need between 51 and 62 billion euros in extra capital in extra capital to weather a serious downturn in the economy and new losses on their books.

The Bank of Spain said the 100 billion euros offered to Madrid gave a wide margin to correct these capital needs. Spain’s three biggest banks would not need extra capital even in a stressed scenario, it said.

The government said it did not expect to shut down any banks and preferred to restructure those in difficulty. European Competition Commissioner Joaquin Almunia has said at least one bank may have to be wound down.

In Luxembourg, officials said the finance ministers decided Spain could initially apply to the euro zone’s temporary rescue fund, the European Financial Stability Facility, for the money, with the loan taken over by the permanent bailout fund the European Stability Mechanism (ESM) once it is up and running after July 9.

“This was decided informally, because there is no formal request from Spain yet,” one euro zone official said.

Such a solution avoids a problem which had scared investors. Debt issued by the ESM must be paid back first in case of a Spanish default, relegating private creditors down the pecking order. Because the new bailout debt will originate from the EFSF it will be issued without the ESM’s seniority requirement.

THREATENING YIELDS

Earlier on Thursday, Madrid sold 2.2 billion euros in medium-term bonds, drawing strong demand almost entirely from domestic banks. Yields on 5-year paper rose to a 15-year high of 6.07 percent, a level regarded by analysts as unaffordable for any prolonged period.

The runaway Spanish yields contrasted with a French auction at which the yield on 5-year benchmark paper hit an all-time low of 1.43 percent.

“The first worry is can they (Spain) fund from the markets? They raised 2.2 billion versus a 2 billion target, so they can raise the money,” said Achilleas Georgolopoulos, a strategist at Lloyds in London.

“Then the (question is), are the yields threatening for the medium term? And yes, clearly they are much higher than the previous auction … But still they can continue for a few months to fund at these levels.”

The ministers were also expected to ponder the next steps with Greece, following the formation of a coalition of mainstream parties committed to the country’s 130 billion euro EU/IMF bailout but determined to renegotiate some of its terms.

Athens will ask lenders for two more years to hit fiscal targets and an extension to unemployment benefits as it seeks to soften the punishing terms of the bailout that saved the country from bankruptcy, a party official said.

Greek officials have said this would entail an extra 16-20 billion euros in foreign funding. It sets up a showdown with Greece’s euro zone partners, in particular paymaster Germany, which have offered modifications but no radical re-write of the conditions attached to the lifeline agreed in March.

“We can always discuss conditions of the loan. But let us not forget one thing: This is not one-way development aid,” Luxembourg Finance Minister Luc Frieden told Reuters Insider television.

RESCUE FUND TO THE RESCUE?

The German government and opposition reached a deal that will allow parliament to approve the ESM next week, but Germany’s top court may delay the rescue fund’s start date, saying it needed time to study the treaty.

The ESM cannot come into effect without approval by Europe’s biggest economy. Ratification also requires the signature of the president and a nod from the constitutional court in Karlsruhe.

The parliamentary floor leader of Merkel’s conservatives appeared to dash French and southern European hopes of nudging Berlin towards common euro area debt issuance, saying there would be no mutualisation of debt in Europe.

Italian Prime Minister Mario Monti suggested, on the sidelines of this week’s G20 summit, using the euro zone’s rescue funds to buy the bonds of Spain and Italy in the secondary market to bring down their borrowing costs.

Monti hosts Spanish premier Mariano Rajoy, German Chancellor Angela Merkel and French President Francois Hollande in Rome on Friday and is also expected to raise the idea there.

Merkel has played down the proposal, which investors said might be counter-productive unless the ECB stepped in decisively in support.

A day before the four-way meeting, Italy disclosed that it is missing its target to lower the budget deficit to 1.7 percent of gross domestic product and will have to cut spending by a further four billion euros to meet the goal.

Any European bond-buying would come with strings attached, equivalent to the sort of bailout programs that Rome and Madrid are trying to avoid because of the stigma attached.

Given the limited capacity of the temporary EFSF and planned permanent ESM rescue funds, with at most 500 billion euros available, a senior EU source said such intervention would make sense only if the ESM had a banking license enabling it to borrow from the ECB. Germany has so far opposed that idea.

(Additional reporting by Leigh Thomas in Paris, Nigel Davies and Paul Day, John O’Donnell in Brussels, Annika Breidthardt, Robin Emmott, Charlie Dunmore and Axel Threlfall in Luxembourg. Writing by Paul Taylor and Mike Peacock Editing by Peter Graff)

(Reuters) – Stocks posted the worst day in three weeks on Thursday on mounting evidence that slowing manufacturing growth worldwide threatened corporate profits.

Shares of energy and materials companies led declines as commodity prices fell. U.S. crude futures slipped below $80 a barrel for the first time since October and the S&P energy sector index .GSPE lost 4 percent. Investors said weak overseas demand was responsible for the decline in those industries.

Stocks’ slide was accelerated by a bearish call from Goldman Sachs, which recommended clients build short positions in the broad S&P 500 index on expectations of more economic weakness.

“We are recommending a short position in the S&P 500 index with a target of 1,285,” (roughly 5 percent below current levels), Goldman Sachs said in a note.

The investment bank cited the Philly Fed’s mid-Atlantic factory index, which fell to minus 16.6 in June, an unexpected contraction in the region’s factory activity.

Semiconductor stocks weighed on the Nasdaq after chipmaker Micron Technology Inc (MU.O) posted a net loss for the fourth straight quarter. Micron lost 7.8 percent to $5.65 and the PHLX semiconductor index .SOX dropped 4.1 percent.

Stocks had enjoyed a two-week run that brought the S&P up more than 7 percent on hopes for additional stimulus from the Federal Reserve.

Business activity across the euro zone shrank for a fifth straight month in June and Chinese manufacturing contracted, while weaker overseas demand slowed growth by U.S. factories.

“While we’ve seen only two of many regional manufacturing surveys for June, there is a clear deterioration taking place, with only the degree being the broad issue,” said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

The KBW Bank Index .BKX fell 2.3 percent amid expectations Moody’s Investors Service would announce downgrades in the banking industry.

The Dow Jones industrial average .DJI was down 251.35 points, or 1.96 percent, at 12,573.04. The Standard & Poor’s 500 Index .SPX was down 30.19 points, or 2.23 percent, at 1,325.50. The Nasdaq Composite Index .IXIC was down 71.36 points, or 2.44 percent, at 2,859.09.

The day’s decline was the worst since June 1 when the S&P 500 fell 2.5 percent.

“The market was extremely overbought coming into this week, and the news gave it an excuse to sell off,” said Jeffrey Saut, chief investment strategist at Raymond James Financial in St. Petersburg, Florida.

Softening data globally lifted hopes of central bank action to support the economy. The U.S. Federal Reserve announced on Wednesday it would extend one monetary stimulus program and said it was ready to do more to help economic growth if necessary.

“Although yesterday’s FOMC delivered easing as expected, with a dovish statement, positive risk sentiment ahead of the FOMC had already buoyed markets. And we now think, with incremental US monetary policy on hold, the market will need to confront a deteriorating growth picture near term,” Goldman Sachs said.

U.S. home resales fell in May and the four-week moving average for new unemployment insurance claims rose last week to the highest level since early December.

Celgene Corp (CELG.O) slumped 11.5 percent to $59.45 after the company said it was withdrawing a European application for wider use of its big-selling Revlimid blood cancer drug.

Philip Morris International (PM.N) lost 3.3 percent to $85.62 after forecasting full-year earnings below Wall Street estimates, saying a strong dollar has hurt sales abroad.

About 7 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year’s daily average of 7.84 billion.

(Reporting By Angela Moon; Editing by Kenneth Barry)

(Reuters) – More than 100 Africans protested on Tuesday outside a police station in China’s southern Guangdong province after an African man died in police custody, state news agency Xinhua said, citing local authorities.

The protest in Guangdong’s capital Guangzhou, which brought traffic to a halt, lasted for two hours on Tuesday, Xinhua said, citing an official from the Guangzhou Municipal Public Security Bureau.

Xinhua said the dead African man, whose identity has not been confirmed, “suddenly fell unconscious” at a police station on Monday afternoon “and died after medical efforts failed”, Xinhua said, citing police.

The African man was taken into the police station for questioning on Monday after he had a “physical altercation” with another person, the owner of an electric bicycle who had given the African man a ride as a passenger on Monday afternoon, Xinhua said. Both of them disagreed over payment.

The protest comes ahead of a summit between China and Africa that China is expected to host in July, and amid a crackdown by Beijing and Shanghai on “illegal foreigners”. In late May, Beijing launched a 100-day campaign to “clean out” foreigners living or working illegally in the city and has stepped up police checks on expatriates.

The Xinhua report said police have launched an investigation into the death and that “police in Guangzhou have called for foreigners to abide by Chinese law and refrain from disturbing public order”.

(Reporting by Sui-Lee Wee; Editing by Jon Hemming)

(Reuters) – Chesapeake Energy Corp (CHK.N) said on Tuesday it is eliminating about 70 jobs from its North Texas operations as the U.S. oil and gas producer seeks to fill a large funding gap.

The cuts, primarily in areas such as public affairs and community relations, represent 8 percent of its workforce in the prolific Barnett Shale field, the company said in a statement.

About 700 employees will remain in North Texas after the cuts, and the company will entertain offers on its Fort Worth office tower that it bought for $100 million in 2008, company spokeswoman Julie Wilson said in a statement.

Chesapeake faces a $4 billion to $5 billion shortfall this year, a hole caused by very low natural gas prices and heavy spending.

The Oklahoma City, Oklahoma, company has pledged to sell up $11.5 billion in assets this year to help fill that financial gap. Chesapeake’s biggest investors have also urged the company to cut spending.

Shares of Chesapeake rose nearly 6 percent to $18.70 on news of the job cuts. (Reporting by Anna Driver; editing by Andre Grenon and Bob Burgdorfer)

(Reuters) – Housing starts fell in May from a 3-1/2 year high, although permits to build new homes rose sharply, suggesting a nascent housing recovery remains on track.

The Commerce Department said on Tuesday that groundbreaking on new homes dropped last month to an annual rate of 708,000 units, falling short of analysts’ expectations.

However, upward revisions to data for March and April put starts above 700,000 for five straight months, a first since 2008.

This highlights a big turn of events that is under way: while the broader U.S. economy appears to be losing steam, housing is gaining traction and has become a relative bright spot. Despite a sharp slowdown in hiring, home prices appear to be stabilizing and homebuilder sentiment has risen to a five-year high.

“The incipient recovery in housing market activity, in short, seems not to have been affected by the recent softening in much of the other economic data,” said Ian Shepherdson, an economist at High Frequency Economics in Valhalla, New York.

The decline in starts in May was entirely due to a 21.3 percent drop in groundbreaking for multi-family buildings, a volatile reading that is prone to substantial revisions.

Starts for single-family homes, which account for most of the market, increased 3.2 percent.

In another positive sign, new building permits jumped 7.9 percent in May to a 780,000-unit pace. That was the highest since September 2008 and well above analysts’ forecasts.

“Several aspects of the report paint a somewhat brighter picture than the headline suggests,” said Peter Newland, an economist at Barclays in New York.

For example, April’s starts were revised up to a 744,000-unit pace from a previously reported 717,000 unit rate. That was the highest reading since October 2008.

Many economists now predict home building will add to economic growth this year for the first time since 2005.

At the same time, Europe’s debt crisis and planned belt-tightening by the U.S. government loom heavily over an already struggling economy. Hiring has slowed every month since February and the Labor Department said on Tuesday that U.S. job openings dropped to a five-month low in April.

A downturn would imperil President Barack Obama’s hopes of re-election in November. The hiring slowdown has raised expectations the Federal Reserve could ease monetary policy when it concludes a two-day policy review on Wednesday.

U.S. stocks extended early gains as traders hoped for central bank stimulus measures.

(Editing by Andrea Ricci)