Upbeat US homes sales lift shares

The Commerce Department said sales of new properties rose 2.8% to 870,000 in the year to July. The news saw the Dow Jones finish up 143 points to 13,379.

The rise in sales was unexpected, as the dip in the housing market has been behind the recent stock market turmoil.

Sub-prime mortgage sector woes have led to fears of a general credit squeeze.

Manufacturing boost

The rise in July new home sales came as a complete surprise, as analysts had been predicting another fall following June's 4% dip.

"Combined with durable goods data, this suggests that the economy was fairly sturdy heading into the market disruption in August"
Economist Pierre Ellis

Additional good news for investors came as the Commerce Department reported a rise in factory sales.

It found that orders for durable goods - those designed to last more than three years - rose 5.9% in July, the highest rise in more than 10 months.

Pierre Ellis, senior global economist at Decision Economics in New York, said the latest house sale figures were "unexpectedly firm".

"So combined with durable goods data, this suggests that the economy was fairly sturdy heading into the market disruption in August," he said.

The Nasdaq index also rose after the figures, ending up 35 points to 2,577.

In Europe, London's FTSE 100 closed up 23 points to 6,220, while Frankfurt's Dax lost five points to 7,507.

Recession fears

Concerns over the US housing sector had intensified on Thursday afternoon when the boss of the largest American mortgage lender, Countrywide, warned that the downturn could led to an economy-wide recession.

"I've seen this movie before, and the ending of the movie always ends up in some form of recession," said Countrywide's chief executive Angelo Mozilo.

The recent market turbulence has centred on the US sub-prime mortgage sector, while gives loans to people with poor credit history.

Sub-prime default levels have risen to record highs over the past year in the face of higher US mortgage rates, raising fears that this could hamper credit availability in the broader market.