Sales of new homes rose in October and the supply of homes on the market fell to its lowest level since April of last year, showing some healing in the battered housing sector.

The Commerce Department on Monday said sales of new single-family homes edged up 1.3 percent to a seasonally adjusted 307,000-unit annual rate, which was the fastest pace in five months yet still below analysts' expectations.

The supply of new homes on the market would last 6.3 months at October's sales pace, down from 6.4 months in September.

The data fueled hopes the housing market could at least be bottoming out.

This looks like a bottom. The market is stabilizing, said Gregory Miller, an economist at Suntrust Bank in Atlanta.

Financial markets largely dismissed the data, with investors focused on efforts in Europe to quell the region's debt crisis. Prices for U.S. stocks rose sharply on hopes fresh proposals could be emerging.

With euro zone policymakers staring into the abyss as bond investors question their ability bail out weaker members, Germany and France stepped up a drive for a fiscal union.

Europe's troubles are casting a pall over the economic outlook for the United States and the world.

The Organization for Economic Cooperation and Development, a Paris-based research center for governments of industrial economies, slashed its global growth forecast and warned that the euro zone could break up.

It also warned that the impact on the economy could be more grave than widely believed.

HOLIDAY CHEER

So far, the U.S. recovery, which has made strides since the summer thanks to strong factory output and improved consumer spending, seems to be holding its own.

Retail sales soared over the Thanksgiving weekend as shoppers scooped up discounted merchandise.

A survey conducted by the National Retail Federation found sales hit a record $52.4 billion, a 16.4 percent jump over the prior year, raising hopes consumer spending would be strong over the holiday season.

But falling home prices and tighter credit continue to be the bane of the recovery, which has progressed with fits and starts since the 2007-2009 recession.

The Commerce Department's report showed the median sales price dropped 0.5 percent in October to $212,300, the lowest in a year.

Falling prices could hamper the housing market by making buyers see homes as a bad investment. Still, compared to October last year, the median price was up 4.0 percent.

The housing market has been hurt by a glut of unsold properties and an unemployment rate that has been stuck around 9 percent.

A proper, sustained recovery in (new home) sales is unlikely to emerge before payroll gains have accelerated substantially further, said Ian Shepherdson, an economist at High Frequency Economics in Valhalla, New York.

The U.S. Federal Reserve has held short-term interest rates at nearly zero since 2008 and has expanded its balance sheet in a bid to get credit to businesses and households.

That has helped bring 30-year mortgage rates to record lows. The problem is that even with low rates, many would-be borrowers still cannot get a loan.

A report from the New York Federal Reserve Bank showed U.S. consumers continued to dig out from record debt loads taken on during the housing boom, with total consumer credit dropping 0.6 percent in the third quarter.

(Additional reporting by Richard Leong in New York; Editing by Andrea Ricci)

Germany Fall