* Rate futures rise, but gains are modest * 2010 Fed hike to 0.5 pct now less than certain * Dovish Bernanke, weak data underpin loose-money views By Burton Frierson NEW YORK, Feb 24 (Reuters) - Investors reduced bets on aU.S. rate hike this year as Federal Reserve Chairman BenBernanke reiterated on Wednesday the central bank"s loose-moneypolicy and new home sales hit a record low. For weeks, traders have been slowly pushing back the datethey expect the Fed to raise its federal funds rate to 0.5percent from the current record low of 0.00 to 0.25 percent. They finally crossed the Rubicon during Bernanke"stestimony before a congressional committee, moving rate futuresup to the point that the prospects of a 0.5 percent funds rateby December is seen as a less-than-fully-certain prospect. However, the move came with little drama and amid a verymodest futures rally as Bernanke broke no new ground with hismessage to Congress that a weak job market and tame inflationwarrant low interest rates for "an extended period." SIGN OF THE DOVE Indeed, a weak round of housing and mortgage data may havecarried more weight on the day, but if anything, it appeared tojustify Bernanke"s economic concerns and low-rates bias. Fordetails see [ID:nN24373288] and [ID:nN23153536] "There was nothing in that testimony that we haven"t heardor been given a very, very significant "heads up" about in thelast couple of weeks," said David Ader, head of government bondstrategy at CRT Capital Group in Stamford, Connecticut. "Perhaps the new home sales data may have had more of asupportive element, but on the margin, I would say thatBernanke was indeed more dovish than we might otherwise haveseen." The testimony came less than a week after the Fed shockedinvestors with a surprise rise in its emergency lending rate tobanks, though it has spent the intervening days trying toconvince markets this was not the start of a monetarytightening campaign. Bernanke"s testimony sounded very much in line with thateffort. Interest rate futures <0#FF:> rose across the board, withthe December contract FFZ0 gaining as far as 99.52. Data showed sales of newly built U.S. single-family homesunexpectedly fell to a record low in January, while mortgagedemand for purchases hit a 13-year low last week, fanning fearsof renewed housing market weakness. Housing was at the epicenter of the financial and economiccollapse that pushed the United States into the worst recessionin five decades. Though the economy returned to growth late last year, therecovery has yet to take firm root. With unemployment near 10 percent, it is difficult toimagine what might drive economic growth from here, though itis not likely to be housing. "Home prices continue the deterioration," said MartyMitchell, head of government bond trading at Stifel Nicolaus inBaltimore. "Obviously it is a sector of the economy that is going tocontinue to be a drag. Those who are hopeful for a recovery oran improvement in home prices, I think, are going to be sorelydisappointed as we move through the year." (Reporting by Burton Frierson; Editing by Jan Paschal)
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