Surprise in housing data

By Elizabeth Strott and Charley Blaine

The housing market got some better-than-expected news today, a surprise for the troubled sector.

New-home sales rose 3.3% in April to a seasonally adjusted annual rate of 526,000, the Commerce Department reported this morning. It was the first monthly rise in six months.

Economists had expected a decline in new-home sales in April.

Still, on a year-over-year basis, new-home sales are down 42%.

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Stocks were modestly higher this afternoon, helped in part by a pullback in oil prices. At 2:30 p.m. ET, the Dow Jones Industrial Average was up 27 points at 12,507. The Nasdaq Composite Index was up 20 points to 2,465, and the Standard & Poor's 500 Index was up 4 points to 1,380.

U.S. stock markets were closed Monday for Memorial Day.

Home prices fall, consumers still wary

In other housing news, the S&P/Case-Shiller home price index fell 14.1% in March from March 2007. It was the biggest decline since 1988. Economists had expected a 14.2% decline.

The composite index of 20 metropolitan areas plummeted 14.4% on a year-over-year basis, and the 10-city index fell 15.3%.

"There are very few silver linings that one can see in the data. Most of the nation appears to remain on a downward path," David Blitzer, chairman of S&P's index committee, said in a press release.

A report on consumer sentiment showed continued worry about the economy. The Conference Board's consumer confidence index declined to a reading of 57.2 in May, down from revised reading of 62.8 in April and far worse than economists' expectations of a reading of 61. The lower reading suggests pessimism among consumers.

Oil, gas still at highs

Oil was down by midday after topping $133 a barrel earlier in the session.

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Crude oil was down $3.45 to $128.74 after being up as high as $133.42 a barrel this morning on concerns about supplies in Nigeria. Royal Dutch Shell confirmed an attack on one of its production sites in Nigeria, but the oil company did not indicate the impact on production.

The long weekend gave Americans a great opportunity to note the effect rising oil prices have had on the price of gasoline., which hit yet another record today. The average price of regular gasoline is $3.937 a gallon, according to the AAA fuel gauge report.

The average price of gas topped $4 a gallon in 11 states and Washington, D.C.

Gas is most expensive is Alaska, where the average price of a gallon is $4.201, followed by Connecticut, at $4.196. Gas is cheapest in Wyoming, where drivers can fill up for an average of $3.751 a gallon.

Gas prices have surged 23% in the past year.

Recession concerns linger

Is the U.S. in a recession or not?

Former Federal Reserve Chairman Alan Greenspan says in The Financial Times this morning that, while he believes there is "a greater than 50% probability of recession, that probability has receded a little and the probability of a severe recession has come down markedly."

Greenspan told the FT that resolution of the financial crisis will depend on home prices. Greenspan said he expects prices to decline by an additional 10% from their February levels.

Berkshire Hathaway's (BRK.A, news, msgs) Warren Buffett was glum about the economy over the weekend.

• Talk back: Is this a 'normal' recession?

"I believe that we are already in a recession," Buffett said in Germany, according to The Associated Press. The economic slowdown that is occurring in the United States may not fit the classic definition of a recession -- at least two consecutive quarters of negative growth -- but Buffett said "people are already feeling the effects of a recession."

The near-term direction of the U.S. economy has been the subject of some lively differences of opinion recently. Many observers have been upbeat, encouraged by a number of better-than-expected economic reports. The optimistic view got support yesterday from Clay Lowery, the Treasury Department's assistant secretary for international affairs.

"Markets appear to be gaining confidence and the availability of credit has improved modestly," Lowery said at a speech to the Foreign Correspondents' Club of Japan on Monday.

Some not-so-cheery commentary came from European Central Bank President Jean-Claude Trichet. Speaking on Monday at news conference in Jerusalem, Trichet said miglobal financial markets are experiencing an "ongoing correction."

Speaking at the same news conference, Federal Reserve Bank of New York President Tim Geithner discussed market volatility and the mentality of boom or bust.

"The U.S. is going through a necessary, but difficult adjustment process," Geithner said, adding that countries around the world have "to try to find that balance that's going to lay the foundation for price stability and sustainable growth over long periods of time."

Time to boost rates?

HSBC (HBC, news, msgs) Chief Executive Officer Michael Geoghegan wants central banks to start raising interest rates.

"Inflation is a long-term problem because there is no long-term will to solve it," Geoghegan said in a speech in Hong Kong, according to published reports.

The Federal Reserve's next meeting is at the end of June, and most analysts expect the Fed to keep rates on hold at 2%. The Fed had lowered rates seven times from 5.25% in September to 2% at its most recent meeting at the end of April in an effort to prevent a major economic slump in the U.S.

Separately, Geoghegan said it may report more losses at its home-loan business. "We are not convinced yet that the worst is over."

HSBC set aside $3.2 billion to cover losses in the first quarter of 2008.

Brokerages cut by BofA

Though the worst of the credit crisis may have passed, the fallout from the housing crisis continues to reverberate in lower earnings estimates for the financial sector.

Bank of America analyst Michael Hecht lowered estimates for Lehman Bros. (LEH, news, msgs) and Morgan Stanley (MS, news, msgs) this morning.

In a note to clients, Hecht said he expects Lehman to lose 50 cents per share in its fiscal second quarter, down from a previous estimate of 76 cents in earnings. Morgan should earn 95 cents in the quarter, 45 cents lower than Hecht's previous estimate. Hecht also lowered his forecast for Goldman Sachs (GS, news, msgs) to $3.45 per share from $3.75 per share.

Hecht cut his price targets on the three companies as well. His target for Lehman is now $43, down from $50, while that for Morgan Stanley was cut to $57 from $62. Hecht lowered his price target on Goldman to $176 from $185.

Analysts at Sanford C. Bernstein lowered their earnings estimates on the same three companies this morning.

Indiana Jones still has it

Americans overlooked the 19-year gap since the previous Indiana Jones film and lined up to see "Indiana Jones and the Kingdom of the Crystal Skull" over the long Memorial Day weekend, bringing in an estimated $126 million at the U.S. box office and an estimated $311 million worldwide.

"Adults really drove this opening," Rob Moore, president of Paramount Worldwide Distribution, told The Associated Press. "This is one of their favorite franchises and they couldn't wait to take their kids with them."

Paramount is a division of Viacom (VIA, news, msgs).

The movie cost approximately $185 million to make.

The fourth Indy flick had the second biggest Memorial Day weekend on record, trailing last year's Walt Disney's (DIS, news, msgs) "Pirates of the Caribbean: At World's End," which took in $153 million in domestic ticket sales.