U.S. housing heals even as its damage widens

WASHINGTON (Reuters) - The U.S. housing market, once the epicenter of the global financial collapse that spawned today's European debt crisis, is on the verge of delivering some positive news.

For the first time since 2005, U.S. residential construction looks set to expand a little next year, and it could add one- or two-tenths of a percentage point to GDP growth in 2012 -- a mere sliver, but one that would add to the picture of a slowly healing U.S. economy.

Every scrap of extra support would help the United States withstand the spreading damage from the crisis in the euro zone, which threatens to push a global slowdown into a deeper and more dangerous recession.

China is slowing quickly as its red-hot property market cools and exports to the European Union, its largest trade partner, sink after years of double-digit growth. Its factory sector has contracted for two months in a row and foreign investment in China is falling.

Brazil also has stalled and India is contracting sharply. Worldwide, 48 central banks have cut interest rates in the last three months to counter the slump. IMF Managing Director Christine Lagarde last week called economic prospects "quite gloomy."

"There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies, that will be immune to the crisis that we see not only unfolding but escalating," Lagarde said.

Liquidity and credit, the lifeblood of commerce, are tightening in some markets as European banks retrench to rebuild capital severely dented by the falling value of their euro-zone sovereign debt holdings. Investors are scrambling for safety by buying U.S. assets, which is pushing up the U.S. dollar. Gold, oil and other commodities are slumping.

"In such an ugly contest, the U.S. dollar wins the least-ugly award," said GaveKal Research Ltd., a Hong Kong-based investment research firm.

Amid the turmoil, any signal that the American economy is gaining muscle would support this dollar-friendly trend.

A batch of data next week could confirm the housing market has bottomed.