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 percent in August as demand for transportation equipment fell sharply. Analysts had forecast a drop of 0.4 percent in August.

However, excluding the transportation segment, factory orders rose 0.9 percent.

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.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in August, increased 4.3 percent to 82.3 from July.

Economists polled by Reuters forecast the index, which leads existing home sales by a month or two, rising 3 percent in August from July. Compared to the August last year, pending home sales were down 20.1 percent.

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.

It's fair to say the market is mainly trading on expectations of what the Fed will do regarding easing, said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

The U.S. central bank last month signaled it was ready to inject more money into the economy to shore up a sluggish recovery from the worst downturn since the 1930s and prevent a damaging phase of deflation.

The Fed, which has already injected $1.7 trillion into the economy by purchasing mortgage-related and government bonds, next meets on November 2-3.

Home sales and building activity are stabilizing after a downward spiral following the end in April of a popular tax credit for home buyers. 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 percent increase.

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

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

(Reporting by Lucia Mutikani and David Lawder; Editing by Neil Stempleman)

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