Record US new housing sales and possible pointers to a recovery in capital spending yesterday boosted hopes that better-than-expected corporate profits might be a sign of an upturn in the US economy in the second half.

Although the recent rise in mortgage rates could soon puncture the buoyant US housing market, the rise in durable goods orders in June suggested that business spending might pick up the slack.

However, some economists said it was too soon to call a turn in capital spending and warned that the strong increase in second-quarter profits reported by leading US companies was less potentially favourable for the economy than it seemed.

About 60 per cent of the top 500 US companies have now reported and about two-thirds beat analysts' expectations. Operating earnings so far are up 8.1 per cent compared with forecasts of 5.3 per cent.

But Mr Russ Koesterich, US equity strategist at State Street, said much of the outperformance was due to the fall in the dollar and cost-cutting rather than a pick-up in demand.

Some economists also warned against reading too much into yesterday's durable goods orders, which were up 2.1 per cent in June, compared with Wall Street expectations of 1 per cent.

But shares reacted positively, with stocks trading higher and bonds lower in volatile trading. - (Financial Times Service)