The Conference Board's U.S. consumer confidence index for August improved to 56.9 in Tuesday's report, higher than the expected improvement to 53.0. The previous month's headline reading of 51.9 was unrevised. One year ago, the index stood at 105.6.

The expectations category improved to 52.8, up from 42.7 in July, but the present situation component fell to 63.2 from 65.8. Economists say the drop in gas prices helps explain the decline in one-year inflation expectations to a five-year low of 6.7%, following July's 7.5%.

"The expectations index is very sensitive to movements in gas prices, so this rebound almost certainly is a reflection of the drop in prices over the past few weeks," Ian Shepherdson, chief U.S. economist at HFE, wrote in a research note.

New home sales in the U.S. rebounded by 2.4% to an annual pace of 515k in July, the Department of Commerce reported Tuesday. Despite the percentage gain, that pace of sales is much lower than expected following 27k of downward revisions to the previous data. June's pace of sales was revised down to 503k, down from an originally reported 530k. Based on that data, economists were expecting July data to fall 0.9% to 525k.

The median sale price of new houses sold in July was $230,700, up from June's revised median of $230,100. The pace of sales is 35.3% below the July 2007 estimate of 796k.

Eric Lascelles, chief economics and rates strategist at TD Securities, said "there was an undeniably cheery quality to the report," as the overhang of supply fell to a 10.1-month supply, down from June's upwardly revised 10.7-month supply and marking a six-month low. Lascelles said the report adds to the slew of data suggesting the deterioration in the U.S. housing market is slowing.

The S&P Case-Shiller U.S. home price index fell less than expected in the second quarter as the 20-city composite index posted an annual decline of 15.38%, extending the first quarter's 14.22% decline. Economists were expecting the quarterly index to fall 16.2%. The index has fallen every month since peaking in July 2006, but economists say the rate of decline may be slowing, as evidenced by the three-month annualized decline of 9.01% in the second quarter compared to the 24.38% decline in the first quarter.

U.S. house prices were flat in June following May's revised 0.4% pullback, the Office of Federal Housing Enterprise Oversight (OFHEO) reported Tuesday. The consensus had been looking for a decline of 0.4% in the month. Prior to revision, May's index had declined 0.3% on the month.

Manufacturing activity in the U.S. Mid-Atlantic states stalled in August, against expectations of some moderation following a sharp decline in July. The Richmond Fed's Fifth District Manufacturing Activity index came in at -16, unchanged from the previous month's reading. The consensus was looking for a reading of -10.

The minutes of the Federal Open Market Committee's (FOMC) Aug. 4-5 meeting show that board members "did not see the current stance of policy as particularly accommodative." It also revealed that most members anticipate the next policy move to be a tightening of rates, but the timing and extent of any change would depend on evolving developments.

The FOMC agreed that while real GDP in the second quarter was higher than anticipated, the labour market continued to "weaken significantly, financial conditions remained unfavorable, consumer and business confidence was downbeat, and manufacturing activity was contracting."

Paul Ferley, assistant chief economist at RBC Capital Markets, said the minutes continued to emphasize a balance between both sides of the dual mandate.

"Though financial markets keyed on the 'significant concern' attached to the upside risks to inflation, the minutes revealed the downside risks to growth were many and varied," he said. "Because of the opposing nature of the interest rate response to these risks, it implicitly argues for the current stance of policy to be maintained near term. In fact, our forecast assumes that the 2.00% Fed funds rate will hold steady until the middle of next year."

Speaking in an interview with Dow Jones Newswires on Monday, Dallas Fed President Richard Fisher (voter) said growth in the U.S. could slow to zero or even turn negative in the second half of 2008, but the main issue remains whether inflation will become persistent or not. "I could see us approaching, certainly, breaching zero," said Fisher commenting on GDP. He added that the path of interest rates will depend on upcoming events.

The Federal Reserve offered $75 billion from its Term Auction Facility (TAF) in a 28-day loan, which scored a stop-out rate of 2.38%. The Fed said 66 bidders offered a total of $84.168 billion in bids for the operation with a bid-to-cover ratio of 1.12.

In Canada, Bank of Canada deputy governor David Longworth said Tuesday that falling energy prices mean Canada's inflation rate will likely be lower than expected between now and the first quarter of 2009. In an address to the Canadian Association for Business Economics (CABE) in Kingston, Ont., Longworth said core and headline inflation in Canada are still expected to converge at the central bank's target of 2% by the second half of next year.

Longworth said the Bank of Canada will continue to carefully monitor the evolution of inflation risks, together with economic and financial developments in the Canadian and global economies, "and to set monetary policy consistent with achieving the inflation target over the medium term."

The number of Canadians drawing employment insurance benefits crept 0.5% higher in June compared with the previous month, Statistics Canada reported Tuesday. A seasonally adjusted total of 460,040 people drew benefits during the month, up from 457,760 in May. Compared with June of 2007, however, the number of recipients was down 3.2%. The June EI recipients shared $732.5 million in benefits, up 3.1% from May and 3.7% higher than in June of last year.

The number of public sector employees in Canada hit 3.4 million in the second quarter of 2008, up 3.1% from the same period last year, Statistics Canada reported Tuesday. Employment growth in the public sector was concentrated in Alberta, British Columbia and Ontario.

It was a busy overnight session, headlined by the release of Germany's Ifo business climate index, which posted a sharp decline in August, and a fall in consumer confidence data as calculated by GfK.

Surprising on the downside, the Ifo business climate index for Germany declined to a reading of 94.8 in August despite expectations for a small decrease to 97.2 from July's 97.5. The current assessment index fell to 103.2 from 105.7 despite forecasts for a 104.4 reading.

A final look at second-quarter GDP results from Germany confirmed preliminary assessments of a 0.5% quarter-over-quarter contraction and an annual 1.7% weighted-day-average (WDA) growth rate. On a non-seasonally adjusted basis, annual GDP rose 3.1% in Q2, also in line with preliminary estimates and the consensus forecast.

According to the GfK on Tuesday, the German consumer confidence index fell to a reading of 1.5 in September, despite expectations for a 2.0 level. August's 2.1 reading was revised down to a 1.9 score.

By Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Geoff Matthews, This email address is being protected from spam bots, you need Javascript enabled to view it , Erik Kevin Franco, This email address is being protected from spam bots, you need Javascript enabled to view it , Patrick McGee, This email address is being protected from spam bots, you need Javascript enabled to view it and Steve Stecyk, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Megan Ainscow, This email address is being protected from spam bots, you need Javascript enabled to view it

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