Reports to detail economic fallout in 3rd quarter

Investors on Tuesday braced for several reports expected to show the U.S. economy contracted even more than originally thought in the third quarter as home prices shrank, more banks fell into trouble and consumer confidence sagged.

The reports come on the heels of a Wall Street rally that drove up major indexes more than 4.5 percent Monday on news of the government's plan to bail out Citigroup Inc., a move investors hope will help quiet some of the uncertainty hounding the financial sector and the overall economy.

The Dow Jones industrials soared nearly 400 points, and the 891-point rise since Friday gave the Dow its biggest two-day percentage gain since October 1987.

Asian markets built on the rally overnight. In Japan, the Nikkei 225 stock average was up 3.4 percent, while Hong Kong's Hang Seng index advanced 3.3 percent by midday. South Korea's Kospi rose 1.5 percent.

Before U.S. markets open Tuesday, the Commerce Department is due to release its new reading on gross domestic product - the value of goods and services produced within the U.S.

The report is expected to show that economic activity contracted at a 0.5 percent annual rate in the July-September quarter, according to the consensus estimate of Wall Street economists surveyed by Thomson Reuters. If that proves correct, it would be a tad worse than the government's initial estimate of a 0.3 percent rate of decline.

The third-quarter reading of the Standard & Poors/Case-Shiller index, a widely tracked measurement of home prices, is also due out before the Wall Street opens. The Case-Shiller 20-city housing index dropped a record 16.6 percent in August from a year ago, the largest drop since its inception in 2000.

Meanwhile, a preliminary report by The Conference Board on consumer sentiment in November, is expected to show more erosion in confidence from already battered levels, as consumers grapple with the continued fallout from the financial meltdown - layoffs, plunging home prices and dwindling retirement funds.

Economists surveyed by Thomson Reuters expect the Consumer Confidence index to slip to 37.9 in November from September's reading of 38, which was the lowest since the New York-based research group started tracking the index in 1967. The projected level would be less than half of the 87.8 reading a year ago.

Wall Street closely monitors sentiment as consumer spending represents about two-thirds of all economic activity.

"The disruptions in the financial markets are really weighing on people's minds," said Mark Vitner, a senior economist at Wachovia Corp., who predicts that confidence will fall to 30 in November.

Also Tuesday, the Federal Deposit Insurance Corp., is scheduled to give an update on how many banks were on the agency's list of troubled institutions and detail how weak the banking industry's results were in the third quarter.

Meanwhile, Treasury Secretary Henry Paulson is scheduled to brief reporters on the government's financial bailout program Tuesday.

Consumers around the country are reeling from job losses, tanking investment portfolios and sinking home values. They are expected to hunker down further in the coming months, making it likely the economy will continue to shrink through the rest of this year and into 2009, more than fulfilling a classic definition of a recession: two straight quarters of economic contraction.

On Monday, the National Association of Realtors reported that sales of existing homes fell by a greater-than-expected 3.1 percent to a seasonally adjusted annual rate of 4.98 million units in October, from a downwardly revised pace of 5.14 million in September.

The median sales price plunged 11.3 percent from a year ago to $183,000. That was the largest year-over-year drop on records going back to 1968, and the lowest median sales price since March 2004.

There were 4.23 million unsold homes on the market in October, down slightly from a month earlier. At the current sales pace, it would take 10.2 months to sell all the properties.

Soaring foreclosures are a driving force behind the credit crisis that has upended Wall Street and caused the government to spend billions rescuing numerous major banking institutions, most recently Citigroup Inc.

President George W. Bush argued Monday that the government's rescue of Citigroup was necessary to protect the financial system and help the economy recover. There could be more such moves if other institutions need help, he said.

Meanwhile, President-elect Barack Obama unveiled the top members of his economic team, beginning with New York Federal Reserve President Timothy Geithner as treasury secretary and Lawrence Summers as director of his National Economic Council. Summers led the Treasury Department under former President Bill Clinton.

Obama urged the new Congress to pass an economic stimulus bill, pledged help for the troubled auto industry and blessed the Bush administration's bailout of the financial industry. Even so, he conceded, "The economy is likely to get worse before it gets better."

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AP Business Writers Jeannine Aversa and Anne D'Innocenzio contributed to this report.

(Copyright 2008 by The Associated Press. All Rights Reserved.)