* Pending sales soar 6.7 pct in April
* Gain is largest monthly increase since Oct 2001
(Adds details, analysts' comments, background)
By Patrick Rucker
WASHINGTON, June 2 (Reuters) - Pending sales of previously owned U.S. homes shot up by 6.7 percent in April, the biggest monthly gain in 7-1/2 years, according to a report on Tuesday that buttressed views the U.S. recession was easing.
The National Association of Realtors said its Pending Home Sales Index, based on new sales contracts, rose to 90.3 in April from 84.6 in March.
It was the third straight monthly increase and the largest jump since October 2001. The monthly gain took the index 3.2 percent above its year-ago level in the latest sign the battered U.S. housing sector was stabilizing.
Economists had expected a rise of just 0.5 percent.
"It's a very positive and encouraging number. It plays into the 'green shoots,' economy stabilization story," said William Hornbarger, senior fixed income strategist at Wachovia Securities in St. Louis.
The blue-chip Dow Jones industrial average <.DJI> pushed into positive territory for the year on the news before settling to near-even by midday, with the Dow Jones home builder index <.DJUSHB> up 2.7 percent.
The dollar, a safe-haven currency which tends to fall when investors move into riskier assets, slid against the euro to a fresh low for the year on confidence that the worst of the recession was over. Prices for U.S. government bonds edged lower.
While the volume of existing home sales has increased in recent months, nearly half involve properties that have gone through foreclosure or which have been sold for a loss.
Last week, the Realtors' trade group said it would take 10.2 months to clear the overstock of existing homes at April's sales pace. That surplus must be reduced before the housing market can return to health.
BOND YIELDS MENACE HOUSING
An NAR measure of housing affordability that blends factors like home prices and mortgage rates has reached record territory with 30-year mortgage rates hovering near record lows with an abundance of homes on the market.
But waning investor appetite for U.S. government debt that has pushed yields on the 10-year Treasury note sharply higher last week also threatens to drive up mortgage costs. Mortgage rates tend to move in tandem with benchmark bonds.
Yields on the 10-year note reached as high as 3.75 percent last week, the highest level since mid-November.
"Since (the Realtors') data was recorded, mortgage rates have started to move back up. That is something to be wary of going forward," said Lawrence Glazer, managing partner at Mayflower Advisors in Boston.
The Federal Reserve has promised to buy as much as $1.45 trillion in mortgage-related debt to help push down home borrowing rates. In addition, it has pledge to buy $300 billion in longer-term Treasury debt to help lower benchmark yields.
Some analysts expect the Fed to expand its Treasury purchase program at its next policy meeting on June 23-24, and a sharp rise in mortgage rates might force its hand.
HOUSING, CONFIDENCE UP
The deep downturn in the U.S. housing market touched off a global credit crisis that sent economies worldwide tumbling into recession. Now, signs are emerging that the global economy is beginning to heal.
An Ipsos/Reuters poll of 23,000 people in 23 countries found global consumer confidence was stabilizing after falling for 18 months, another hopeful sign for the world economy. [ID:nN01517446]
Lawrence Yun, senior economist at the Realtors' trade group, credited improved home affordability and a new government program that provides an $8,000 tax credit for first-time homebuyers for the surge in U.S. buying activity.
The last time the trade group's pending home sales index had risen for at least three straight months was the period from July through October 2004 -- a housing boom year. (By Patrick Rucker with Mark Felsenthal in Washington and Richard Leong, Leslie Adler and John Parry in New York; edited by Andrea Ricci)