WASHINGTON - October 4, 2010 - Pending sales of previously owned homes rose to a four-month high in August, implying the housing market was regaining some stability after recent steep declines following the end of a home-buyer tax credit.

Another report on Monday showed new orders received by domestic factories fell 0.5% in August as demand for transportation equipment fell sharply. Analysts had forecast a drop of 0.4% in August.

The data offered few fresh clues on whether the Federal Reserve would embark on a new round of monetary policy easing next month, as widely anticipated by financial markets.

"Sales have stabilized at very, very low levels after the expiration of the federal tax credits. At these low levels, you could see some good percentage increases in sales, but it doesn't show any sustainable uptrend in housing conditions," said Ryan Wang, an economist at HSBC Securities in New York.

Major U.S. stock indexes were trading flat to marginally lower as a ratings downgrade weighed on Microsoft Corp and new Swiss banking rules raised fears of smaller bank profits. Prices for U.S. government debt were mostly up, while the dollar rose against the euro.

Home sales and building activity are stabilizing after a downward spiral following the end in April of a popular tax credit for homebuyers. But high unemployment and a glut of homes on the market imply recovery will be very weak.

"Households are simply unable to, or do not want to, buy a home," said Paul Dales, a U.S. economist at Capital Economics in Toronto.

"The problem is not the level of borrowing costs, meaning that more quantitative easing by the Fed is unlikely to make much difference. The upshot is that housing activity will remain weak for a number of years yet."

Total factory orders for July were upwardly revised to a 0.5% increase.

A 10.2% decline in the volatile transportation equipment segment, with the motor vehicle-related orders off 3.6% and nondefense aircraft down 40.2%, weighed down factory orders in August.

Orders for machinery rose 5.2% in August, while orders for computers and electronic products rose 3.7%.