* Strong U.S. home sales eclipse disappointing Q3 GDP
* Dollar hits 2-month high against yen as rates seen rising
* Gold hits 7-week low as dollar strengthens
By Walter Brandimarte
NEW YORK, Dec 22 (Reuters) - European shares hit a 14-month
closing high on Tuesday and U.S. stocks gained as surprisingly
strong sales of previously owned U.S. homes boosted optimism
about an economic recovery, also driving up the dollar.
The confidence in the economy drove down U.S. Treasuries
prices for a second consecutive day as investors moved away
from lower-risk assets.
The dollar hit a two-month high against the Japanese yen
and traded near a 3-1/2-month high against the euro as
investors speculated the U.S. Federal Reserve may be forced to
raise interest rates sooner than forecast.
U.S. existing home sales jumped 7.4 percent in November to
an annual rate of 6.54 million units, the fastest pace since
February 2007. Economists had expected sales at a pace of 6.25
million units. For more, see []
The housing data outweighed a disappointing final reading
for U.S. third-quarter gross domestic product, which the
government said expanded at an annual pace of 2.2 percent,
below the 2.8 percent it had reported last month.
"Further improvement in the housing market is likely to
lend support to the equity market as we finish the year," said
Alan Gayle, senior investment strategist at RidgeWorth
Investments in Richmond, Virginia.
"The housing market has been a key concern for equity
investors all this year, so further progress is an encouraging
sign as we get ready to start 2010."
The housing data boosted construction shares, driving the
Dow Jones U.S. Home Construction index <.DJUSHB> up 2.9
percent.
The Dow Jones industrial average <> gained 44.67
points, or 0.43 percent, to 10,458.81, while the Standard &
Poor's 500 Index <.SPX> rose 2.89 points, or 0.26 percent, to
1,116.94. The Nasdaq Composite Index <> was up 9.39
points, or 0.42 percent, at 2,247.05.
The S&P 500 briefly hit a 14-month high, but the stronger
dollar limited the broader market advance and pressured sectors
like energy and other natural resources.
In Europe, the FTSEurofirst 300 <> index of top
shares rose 0.7 percent 1,035 points, its highest closed since
Oct. 3, 2008.
The pan-European index is up more than 24 percent so far
this year and up more than 60 percent from its lifetime low hit
last March.
Energy shares in Europe gained on Tuesday even as oil
prices declined. Heavyweights BP <BP.L>, Royal Dutch Shell
<RDSa.AS> and Total <TOTF.PA> rose between 1.1 and 1.9
percent.
U.S. crude oil prices <CLc1> fell 11 cents, or 0.15
percent, to $73.61 per barrel, pressured by the stronger dollar
and following OPEC's decision to keep output targets steady.
[]
DOLLAR KEEPS RALLYING
Higher Treasuries yields and expectations of a stronger
U.S. economic rebound allowed the dollar to keep strengthening
against major currencies.
Against the Japanese yen <JPY=>, the greenback firmed 0.58
percent 91.68. Earlier in the session, it hit 91.86 yen, its
strongest level since late October.
The euro <EUR=> dropped to $1.4219, according to Reuters
data, the lowest level since early September. It was last down
0.2 percent on the day at $1.4254.
"The stronger housing market number helped dollar bulls
regain control," said Kathy Lien, director of currency research
at GFT Forex in New York.
"Any negative sentiment from the U.S. GDP report was offset
by another strong month for existing home sales."
Sterling slipped to a more than two-month low of $1.5924
<GBP=>, according to Reuters data, after third-quarter UK gross
domestic product was revised up less than expected to a 0.2
percent contraction. See []. Sterling was last
down 0.6 percent at $1.5944.
The stronger dollar also encouraged investors to sell gold,
which fell below $1,080 per ounce to its lowest level since
early November. Spot gold prices <XAU=> lasted traded down
$7.10, or 0.65 percent, at $1,084.60 per ounce.
The economic optimism drove investors away from U.S.
Treasuries for the second consecutive day, but analysts said
the moves were exaggerated by very thin volumes in a
holiday-shortened week.
The benchmark 10-year Treasury note <US10YT=RR> was trading
19/32 lower, with the yield at 3.75 percent, up from 3.68
percent late on Monday and the loftiest since mid-August.
The Treasury yield curve remained at record steep levels,
with the spread between two-year note yields and 10-year note
yields holding at its widest on record at 285 basis points.
(Additional reporting by Ellis Mnyandu, Chris Reese and
Wanfeng Zhou; Editing by Leslie Adler)
