U.S. Stock Futures Retreat as Housing Data Offset TARP Payback

May 19 (Bloomberg) -- U.S. stock-index futures retreated as housing starts unexpectedly dropped to a record low, erasing an early rally spurred by expectations some banks are healthy enough to repay government bailout money.

Home Depot Inc. and Lowe’s Cos., the two largest U.S. home- improvement retailers, dropped at least 2.7 percent after housing starts slumped 13 percent to an annual rate of 458,000, less than forecast by economist. D.R. Horton Inc., KB Home and Lennar Corp. led a decline in homebuilders, falling at least 1.7 percent.

Futures on the S&P 500 expiring in June lost less than 0.1 percent to 906.5 at 9:11 a.m. in New York after rallying almost 1 percent earlier. Dow Jones Industrial Average futures fell less than 0.1 percent to 8,462. Nasdaq-100 Index futures slipped 0.4 percent to 1,383.25. Asian and European shares gained.

“The housing sector has driven us into recession and the hope is that it will take us out of it -- maybe not so soon,” said Stanley Nabi, vice chairman of Silvercrest Asset Management Group, which oversees $8 billion in New York. “Reaction should be muted, though, because everybody had expected a slow recovery in housing.”

U.S. equity futures rallied before the housing data after people familiar with the matter said Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley applied to refund a combined $45 billion in government bailout funds.

The three New York-based banks need approval from the Federal Reserve, their primary supervisor, to return the money, according to the people, who requested anonymity because the application process isn’t public. Spokesmen for the banks declined to comment, as did Calvin Mitchell, a spokesman for the Federal Reserve Bank of New York.

‘Relatively Healthy’

“The three banks have been estimated to be relatively healthy and the news helps sentiment,” said Gregor Mast, an equity strategist at Clariden Leu in Zurich, which oversees about $88 billion. “The end-of-the-world view in the market is evaporating.”

D.R. Horton, the largest U.S. homebuilder by market value, fell 2.7 percent to $9.52. Lennar lost 1.7 percent to $9.85. KB Home slipped 2 percent to $16.50.

Builders broke ground on the fewest homes on record in April as a plunge in work on condominiums and apartment buildings overwhelmed the second straight gain in starts on single-family properties.

The decrease was led by a 46 percent decline in multifamily starts and followed a 525,000 pace the prior month, the Commerce Department said. Building permits, a sign of future construction, fell 3.3 percent to a record low pace of 494,000.

GE Stake

General Electric Co. gained 0.9 percent to $13.59. Fidelity Investments, the largest mutual-fund company, more than doubled its stake in the biggest maker of power-plant equipment. Fidelity bought 90.3 million GE shares in the first quarter, according to data compiled by Bloomberg.

MGM Mirage rallied 2.4 percent to $8.95. The largest operator of casinos on the Las Vegas Strip amended its loan agreement with lenders led by Bank of America to waive covenant defaults and allow it to pay down debt, according to a filing with the Securities and Exchange Commission.

MSCI Inc. sank 9.4 percent to $21.28. Morgan Stanley, the sixth-biggest U.S. bank by assets, plans to sell its remaining 27.7 million shares in the index provider in a public offering that may garner about $650 million.

The S&P 500 yesterday jumped the most in two weeks, restoring its yearly gain to 0.7 percent, as analysts recommended Bank of America and Lowe’s. beat earnings projections. The benchmark index for U.S. equities has surged 34 percent since March 9 on signs the global recession is easing.

The benchmark index for U.S. stock options yesterday slipped to its lowest close since Lehman Brothers Holdings Inc.’s September bankruptcy as global stocks rallied. The VIX, as the Chicago Board Options Exchange Volatility Index is known, slumped 8.7 percent to 30.24 and touched 30 for the first time since closing at 25.66 on Sept. 12.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.