WRAPUP 4-U.S. housing starts hit 6-month high, output rises

* U.S. new home construction highest in six months

* Building permits fall after hitting 14-month high

* Industrial production, capacity use both rise
(Adds Fed minutes, updates markets)

By Lucia Mutikani and Emily Kaiser

WASHINGTON, Feb 17 (BestGrowthStock) – U.S. housing starts rose to
a six-month high in January and industrial output increased
solidly, pointing to an economic recovery that was taking a
firm hold and respectable first-quarter growth.

Groundbreaking activity for new homes increased 2.8 percent
to an annual rate of 591,000 units, reversing the prior month’s
weather-induced drop, a report from the Commerce Department
showed on Wednesday. That was above market expectations for a
580,000-unit pace.

In a separate report, the Federal Reserve said industrial
production rose 0.9 percent, with manufacturing, mining and
utilities all posting gains. Economists had expected a 0.7
percent increase.

“The data is very solid and very strong,” said Michael
Strauss, chief economist at Commonfund in Wilton, Connecticut.
“The economy gets no respect but it is doing significantly
better and we see that on the production side in particular.”

The reports and better-than-expected earnings from Deere &
Co., the world’s largest maker of agricultural equipment, gave
a lift to U.S. stocks (Read more about the stock market today. ). The U.S. dollar also rose broadly, while
prices for U.S. government debt tumbled.

Deere, seen as a bellwether for the global economy, raised
its outlook for fiscal 2010 machinery sales growth to a range
of 6 percent to 8 percent from a previous estimate that sales
would fall 1.0 percent. [ID:nN16124382]

Investors are watching for any sign the U.S. economy may be
losing steam after a surprisingly strong finish to 2009. The
signs of strength in the economy, which grew at a 5.7 percent
rate in the fourth quarter, came as the recovery in the euro
zone showed evidence of faltering.

President Barack Obama, whose administration deployed a
$787 billion stimulus package last year to rescue the economy,
on Wednesday said more work still needed to be done.

“Our work is far from over but we have rescued this economy
from the worst of this crisis,” he said.

HOUSING BEING WATCHED

The housing market, the main trigger of the most painful
U.S. economic downturn in 70 years, has been a particular area
of concern after disappointing reports on December home sales.

Some analysts worry mortgage rates will rise, putting
additional pressure on a still weak market, when the Fed ends
purchases of mortgage-related securities at the end of March.

Minutes of the Fed’s January policy meeting showed several
U.S. central bank policymakers want to start selling securities
relatively soon as a way to cut back their massive supply of
cash to the financial system. They expected the economic
recovery to continue. For details see: [ID:nWEQ003794]

The housing starts report, however, hinted at fundamental
improvement. Over the past 12 months, housing starts have
surged 21.1 percent, the largest increase since April 2004.

“It’s a positive surprise on all fronts and shows that
overall demand has moved higher. That’s an important element to
watch as we move through a cycle going from incentive-based to
more organic growth,” said Craig Peckham, equity trading
strategist at Jefferies & Co in New York.

Home construction last month was boosted by clear weather
after a stormy December. That December weather had also played
a role in industrial production, lifting output at utilities.
January’s report on industrial output showed broader gains.

Capacity utilization, a measure of slack in the economy,
rose to 72.6 percent from 71.9 percent a month earlier, but was
still 8 percentage points below the average from 1972 to 2009,
suggesting little inflationary pressure.

Fed officials are keeping an eye on how quickly the
recovering economy absorbs the excess slack that built up
during the recession. With unemployment hovering close to 10
percent, they have said they are likely to keep interest rates
extraordinarily low for “an extended period.”

New home construction contributed to economic growth in the
third quarter of 2009 for the first time since 2005. But
activity slowed sharply in the fourth quarter and while
homebuilder sentiment edged up this month, it remains at levels
consistent with poor conditions.

Even with mortgage rates near record lows, demand for home
loans remains lethargic. Mortgage applications dipped 2.1
percent last week, the Mortgage Bankers Association said.

Housing starts peaked at a 2.273 million unit annual pace
in January 2006 and bottomed at 479,000 units last April. They
have been bouncing around between 500,000 and 600,000 units.

Permits for new building projects fell 4.9 percent to
621,000 units last month after rising to a 14-month high of
653,000 in December, the Commerce Department said.
(For a table on housing starts, see [ID:nCAT005086])
(For a table on industrial output, see [ID:nWEQ003790])
For a graphic on housing starts: see
http://link.reuters.com/kyj99h
For a graphic on building permits: see
http://link.reuters.com/jyj99h
For a graphic on industrial output: see
http://link.reuters.com/dyp99h

Stock Market

(Additional reporting by Ryan Vlastelica in New York; Editing
by Andrea Ricci)

WRAPUP 4-U.S. housing starts hit 6-month high, output rises