Sales of newly built single-family homes rose in April to their highest level in nearly two years, as buyers benefited from a popular government tax credit.

KEY POINTS: * The U.S. Commerce Department said sales jumped 14.8 percent to a 504,000 unit annual rate, the highest since May 2008, from an upwardly revised 439,000 units in March. It was the second straight month that new home sales rose. * Analysts polled by Reuters had expected new home sales to increase to a 430,000 unit annual pace from March's previously reported 411,000 units. * Buyers had to sign contracts by April 30 and close on the home by the end of June to qualify for the federal tax credit. * New home sales are measured at contract signing and analysts believe buying activity will temporarily ebb in May. However, they expect sales to pick up toward year-end as the economic and labor market recovery gain more vigor. * Despite the jump in sales, the median sale price for a new home dropped a record 9.7 percent from March to $198,400, the lowest since December 2003, the Commerce Department said. In the 12 months to April, the median sale price declined 9.5 percent.

COMMENTS:

DAVID RESLER, CHIEF ECONOMIST, NOMURA SECURITIES INTERNATIONAL, NEW YORK:

Obviously a very strong reading and is welcome news this sector of the economy seems to be continuing to recover. Now, are we likely to hold this sales volume? Probably not. We suspect there's a strong element of sales growth coming from the home buyer's tax credit. But these are good numbers, there's no two ways around it.

This news comes in the middle of (the turmoil in Europe) but the happened while the U.S. stock market was at its highest levels in a couple of years. It doesn't really tell us much at all except the economy was clearly gaining some traction when the stock market stumbled at the beginning of this month.

JIM O'SULLIVAN, CHIEF ECONOMIST, MF GLOBAL, NEW YORK

It's clearly exaggerated by the tax credit. It's evitable that we will see a drop-off in sales over the next several months. The trend is still more up than down, but you can't use today's report to judge where the trend is.

Only time will tell where the trend is heading. With mortgage rates still low and employment starting to grow, the likelihood is for the trend to be up.

HOWARD SIMONS, STRATEGIST, BIANCO RESEARCH, CHICAGO

The problem is we don't know what the number would have been in the absence of the homebuyer tax credit, so I wouldn't get too excited about this because it's artificial.

Why would we really have a rip-roaring housing market when we have a supply overhang and personal income and employment aren't rising?

Next month, we might see an unusual drop; yet another artificial number. We really won't have clearer picture until the end of the year.

PETER NEWLAND, U.S. ECONOMIST, BARCLAYS CAPITAL, NEW YORK, NEW YORK:

On the surface, this is a very strong report. While the strong gain largely reflects the effect of the home buyer tax credit, the strength is much better than we expected. The drop in inventory is also a positive. The tax credit likely brought sales forward and we could likely see some negative payback, but it will not totally reverse the mildly positive trend.

Home prices will likely bounce around a bottom for a while. While we do not see a big downside in prices, we also do not see a surge in prices. We will likely see zero home price growth for the rest of the year.

WILLIAM LARKIN, PORTFOLIO MANAGER WITH CABOT MONEY MANAGEMENT IN SALEM, MASSACHUSETTS:

Prices are continuing to fall, which is problematic, but on the new home sales that makes sense because they will try to get as competitive as possible, in a new reality for the economy.

This report is of secondary importance in the current market environment. Treasuries will be focusing on the stock market, the international markets and the euro.

JACK ABLIN, CHIEF INVESTMENT OFFICER, HARRIS PRIVATE BANK, CHICAGO:

That is a big number, but my sense is that while this is great news, we're drawing last-minute incentive sales from the future. We'll probably see a few months of soft patches to make up for this.

MARKET REACTION: STOCKS: U.S. stock indexes slightly extended gains. BONDS: U.S. Treasury debt prices were lower. DOLLAR: U.S. dollar rose against the euro and yen.

New York