On Wednesday January 27, 2010, 10:29 am

By Lucia Mutikani

WASHINGTON (Reuters) – Sales of newly built U.S. single-family homes fell unexpectedly in December, data showed on Wednesday, the latest indication that the government-led housing recovery might be losing some steam.

The Commerce Department said sales fell 7.6 percent to a 342,000 unit annual rate from an upwardly revised 370,000 units in November. It was the second straight month that new home sales declined.

Analysts polled by Reuters had expected new home sales to increase to a 370,000 unit annual pace from November’s previously reported 355,000 units.

U.S. stock indexes fell on the data, while government bond prices held at higher levels.

“This isn’t good news. It should put some pressure on the market, especially coming after the disappointing outlooks we saw,” said Dan Cook, senior market analyst at IG Markets in Chicago.

New home sales for the whole of 2009 fell 22.9 percent to a record low 374,000 units, the department said.

The data came as the Federal Reserve deliberated on monetary policy. The U.S. central bank is expected to leave overnight lending rates near zero.

At its meeting in December, the Fed announced it would end purchases of agency mortgage-backed securities in March. The program has depressed mortgage rates, contributing to the housing market’s healing in recent months.

But the housing market recovery is showing some signs of fatigue after a surge in sales as first-time buyers rushed to take advantage of a popular tax credit, which had been scheduled to expire in November.

It has since been expanded and extended until June this year and while analysts expect home sales to pick up as a result, they reckon the pace will not be as strong as witnessed with the initial tax credit.

“This was again related to the potential ending of the home buyer tax credit and then they put it back on, so that caused a lot of uncertainty. If you don’t start seeing a rebound by February in these home sales then I would start to get concerned,” said John Canally, economist at LPL Financial in Boston.

The housing market was the main catalyst of the most painful downturn in 70 years and renewed weakness could hobble the economic recovery.

Despite the slump in sales there were a few bright spots in Wednesday’s report. The median sale price for a new home rose 5.2 percent last month from November to $221,300, the highest in seven months and the biggest rise since April 2009. Compared to December 2008, the median sale price fell 3.6 percent.

To read entire story, click here.