* Pending home sales rise 1.7 percent, scale 2-1/2 year high
* Midwest factory gauge advances in December, orders up
* Reports suggest underlying momentum in the economy
WASHINGTON, Dec 28 (Reuters) - Contracts for U.S. home
resales hit a 2-1/2-year high in November and factory activity
in the Midwest expanded this month, suggesting some strength in
the economy despite the threat of tighter fiscal policy.
The National Association of Realtors said on Friday its
Pending Home Sales Index, based on contracts signed last month,
increased 1.7 percent to 106.4 - the highest level since April
2010 when the home-buyer tax credit expired.
November marked the third straight month of gains for signed
contracts, which become sales after a month or two, and followed
a 5 percent increase in October.
A separate report showed the Institute for Supply
Management-Chicago business barometer rose to 51.6 in December
from 50.4 in November. A reading above 50 indicates expansion in
the regional economy. It was the second straight month of growth
and was driven by a rebound in new orders.
The data suggested some of the growth momentum from the
third quarter carried into the final three months of 2012, even
as businesses and households braced for sharp cuts in government
spending and higher taxes in the new year.
Data so far in the fourth quarter ranging from consumer
spending, housing, employment and the various manufacturing
indicators have been fairly upbeat.
"We don't see much evidence that the economy was slowing as
we headed into the end of the year, but everything could change
on Jan. 1," said John Ryding, chief economist at RDQ Economics
in New York.
There are fears that currently stalled budget talks in
Washington will fail to steer clear of a $600 billion "fiscal
cliff" of less government spending and higher taxes, which could
tip the economy back into recession.
"There is nothing here to suggest that the economy has
enough momentum to withstand the shock if we go over the
fiscal-cliff with no quick return," said Ryding. "The good news
right now is it looks like we could have the mid-twos kind of
GDP (growth) for the fourth quarter."
STRENGTHENING HOUSING RECOVERY
The economy grew at a 3.1 percent annual rate in the third
quarter. The latest Reuters survey of economists put
fourth-quarter gross domestic product growth at a 1.2 percent
rate, mostly because of superstorm Sandy, which struck the East
Coast in late October and fiscal cliff-related cutbacks in
business spending.
U.S. financial markets ignored the data as attention
remained focused on the developments in Washington surrounding
the fiscal cliff.
Stocks on Wall Street fell, putting the Standard & Poor's
500 index on track for a fifth straight day of declines.
U.S. Treasury debt prices rose, while the dollar was little
changed against a basket of currencies.
Though the employment gauge in the Chicago ISM survey fell
to a three-year low in December, economists expected a rebound
given the strength in new orders.
"The drop in employment reflects the weakness in new orders
in November and to a lesser degree the fiscal cliff. With the
bounce back in new orders, employment will also bounce back,"
said Eric Green, chief economist at TD Securities in New York.
The pending home sales report pointed to a strengthening in
the housing market recovery. Contracts were up 9.8 percent in
the 12 months through November.
The housing market has turned the corner after a dramatic
collapse, which dragged the economy through its worst recession
since the Great Depression of the 1930s.
Home sales and prices are rising, encouraging builders to
undertake new construction projects. Home resale contracts were
up in three of the country's four regions. They were unchanged
in the South.
"The housing revival seems to be happening in a way that
puts some positive feedback loop, a virtuous cycle into the
economy," said Jerry Webman, chief economist at OppenheimerFunds
in New York.