Sales of previously owned U.S. homes dropped to a record low in October and businesses slashed spending on new equipment, according to reports on Wednesday that added to signs of a rapidly slowing economy.

The dire housing market worsened in October as banks tightened lending standards and prices fell at a record pace.

Sales of existing homes fell 1.2 percent in October to an annual rate of 4.97 million -- weaker than economists had forecast and the lowest since the National Association of Realtors began tracking single-family and condominium sales jointly in 1999.

Median home prices tumbled 5.1 percent from a year ago to $207,800 and inventories of unsold homes rose 1.9 percent to 4.45 million, equivalent to 10.8 months of supply at the current sales pace.

Many economists say the odds are rising that the housing slump could lead to a significant slowdown in 2008, and a separate report on orders for long-lasting goods added to those concerns.

The Commerce Department said orders for durable goods such as refrigerators and televisions fell for a third straight month, slipping 0.4 percent last month. Excluding transportation, orders were down more sharply by 0.7 percent. Both categories were weaker than economists had forecast.

In a worrying sign, a gauge of companies' willingness to invest in new equipment weakened sharply, potentially signaling businesses are wary of sales prospects.

The gauge, known as nondefense capital goods orders excluding aircraft, fell 2.3 percent in October, the biggest monthly decline since a 2.4 percent drop last February.

David Wyss, chief economist for Standard & Poor's in New York, said the durables report was bad news for manufacturing and pointed to broader-based economic difficulties.

It suggests that this economy is weakening rapidly, Wyss said, especially because of the decline in nondefense capital goods excluding aircraft. It suggests to me that the Fed needs to give the economy another kick.

MARKETS REBOUND

A top Federal Reserve policy-maker indicated the U.S. central bank might be ready to provide that boost by lowering interest rates further. Fed Vice-Chairman Donald Kohn acknowledged that uncertainty about the economy's prospects has become unusually high right now.

These uncertainties require flexible and pragmatic policy-making -- nimble is the adjective I used a few weeks ago, Kohn told the Council on Foreign relations in New York before the latest economic reports were published.

Kohn's comments more than offset the negative economic news and stock prices shot upward on hopes for another interest-rate cut when the Fed's policy-setting committee meets December 11. Bond prices fell as investors shifted money to stocks.

Economist Pierre Ellis of Decision Economics Inc. in New York said the size of the fall in business spending on new equipment was too much to indicate that the situation is favorable for investment, but not enough to indicate a problem derived from the financial crisis.

So the picture remains muddled, Ellis added.

Among key categories, transportation orders rose slightly by 0.2 percent but defense orders were down 10.6 percent. Orders for computers plunged 15.2 percent after rising 7.6 percent in September.

The Mortgage Bankers Association said on Wednesday that applications for mortgages fell last week and rates on some adjustable loans rose to their highest level in two months.

The MBA's seasonally adjusted index of mortgage application activity fell 4.3 percent to 652.5 in the week ended November 23.

Rates on one-year adjustable-rate mortgages that include many jumbo loans rose 26 basis points to 6.24 percent, highest since the height of the credit crunch in mid-September.

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