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The National Association of Realtors said on Tuesday sales slipped 3.8 percent month over month to an annual rate of 4.81 million units, the lowest since November.

It was the second straight month of declines in home resales, but less than the 5.9 percent drop to a 4.80 million-unit pace that economists had expected.

While the fall in sales last month -- which was telegraphed by a steep fall in pending home sales contracts in April -- was partly due to bad weather in some parts of the country, including tornadoes, it underscored the fundamental weakness in the sector.

The report was also the latest set of data to confirm a sustained weakness in the economy through the second quarter, which has been marked by a sharp slowdown in regional factory activity, soft retail sales and anemic employment growth.

"This one report does not change our long-term view in that we still believe the housing market will remain a drag on overall economic activity in 2011 and likely into 2012," said Tom Porcelli, chief economist at RBC Capital Markets in New York.

But the smaller-than-expected decline in sales was yet another indication that the economy was set to regain momentum in the second half of the year.

U.S. stock indexes extended gains on the data, while government debt prices eased. The dollar was little changed.

The report came as policymakers at the Federal Reserve started a two-day meeting. Officials are expected to acknowledge the recent slowdown in economic activity, but they are likely to stick to their view that the soft patch is transitory.

The U.S. central bank is expected to confirm its $600 billion government bond-buying program will finish at the end of the month, as scheduled. The Fed, which has been criticized for risking inflation, has set the bar very high for any more monetary stimulus.

HOME PRICES FALL

In the 12 months to May, home resales were down 15.3 percent. The general weak housing market tone was underscored by the median home price, which at $166,500 was 4.6 percent lower than a year earlier.

The housing market is being squeezed by an overhang of unsold homes and a tide of foreclosures, which are depressing prices.

NAR chief economist Lawrence Yun said he believed sales had bottomed and expected pending contracts for May to rise by at least 15 percent. The pending homes sales report is due next week.

Foreclosures and short sales -- which typically occur at about 20 percent below market value -- accounted for 31 percent of transactions last month, down from 37 percent in April.

Cash purchases made up 30 percent of sales in May, while investors accounted for 19 percent of transactions.

Sales last month fell across the board, with multifamily dwellings declining 8.1 percent and single-family home units slipping 3.2 percent.

At May's weak sales pace, the supply of previously owned homes on the market rose to 9.3 months' worth from 9.0 months in April.

A supply of between six and seven months is generally considered ideal, with higher readings pointing to lower house prices.

(Editing by Andrea Ricci)

* Euro zone finance ministers said the Greek government had until July 3 to approve new steps to get the next installment of 110 billion euros in European Union and International Monetary Fund aid.

* The market expected a vote of confidence in Greek Prime Minister George Papandreou new cabinet to pass on Tuesday -- the first of three hurdles the government must clear to avert the euro zone's first sovereign debt default.

* S&P 500 futures gained 5.7 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Dow Jones industrial average futures advanced 39 points, and Nasdaq 100 futures rose 8.25 points.

* The Federal Reserve Open Market Committee (FOMC) begins a two-day meeting later Tuesday. The Fed is expected to cut its growth forecast for 2011, but the central bank and its chairman, Ben Bernanke, will likely continue to argue the slowdown is temporary and the economy will pick in the second half of the year.

* U.S. home sales data for May is due at 10 a.m. EDT. Analysts in a Reuters survey expected sales to drop to about 4.8 million, compared with 5.05 million the month before.

* In company news, drugstore chain Walgreen Co (WAG.N) is expected to report quarterly earnings before the opening bell. Adobe Systems Inc (ADBE.O) is set to release results after the bell, with analysts looking for a 20 percent increase in earnings per share from 44 cents a year ago.

* Research In Motion Ltd (RIM.TO)(RIMM.O) lost a second marketing executive, and its shares dropped 7 percent Monday in the latest bit bad news that has cut the BlackBerry maker's market value in half this year.

* U.S. lawmakers working to rein in the country's rising debt said they will have to make substantial progress this week to ensure the country retains its top-notch credit rating.

* Rating agency Fitch said it would place the credit rating of the United States on watch negative if the debt ceiling is not raised by August 2, when the government has warned it may not be able to borrow more.

* On Monday, stocks erased early losses as the S&P 500 dipped toward 1,259.78, its 200-day moving average, which is often viewed as a pivotal point in determining market direction.

(Reporting by Angela Moon; editing by Jeffrey Benkoe)

Markets are waiting for a confidence vote on the government in the Greek parliament later in the day, a step toward the passage of more spending cuts in exchange for foreign loans.

Meanwhile, international lenders are making an unexpected visit to Athens to check on its resolve to implement painful austerity plans that have caused weeks of public protests and political confusion.

The euro last traded at $1.4340, well above the three-week low of $1.4073 it hit last Thursday, but down from the day's high of $1.4385.

"In the big scheme of things, market players are starting to believe that euro zone policy makers, especially German policy makers, will try to avoid a hard landing in Greece," said Makoto Noji, senior strategist at SMBC Nikko Securities.

If the vote is passed, the Greek parliament will vote on the austerity measures on June 28. Euro zone finance ministers gave Greece two weeks from Monday to approve further spending cuts and tax rises in return for another 12 billion euros in emergency loans.

Were Greece to default on its sovereign debt, it could trigger a global financial crisis in much the same way that Lehman Brothers' collapse did in 2008, markets fear.

Credit rating agency Fitch said on Tuesday it would regard both a Greece sovereign debt swap and a rollover of maturities, even a voluntary one, as a default.

Japan's Nikkei average .N225 was up 0.6 percent at 9412.87, MSCI's index of Asia-Pacific stocks .MIAPJ0000PUS excluding Japan was up 0.7 percent, and indices in Hong Kong and South Korea also rose.

The outlook for the Nikkei was largely rangebound trading for the rest of June, an analyst said.

"At least until the central bank's tankan is out (on July 1), rises are likely to be limited to around 9,500," said Kenichi Hirano, a strategist at Tachibana Securities, referring to the Bank of Japan's quarterly survey of corporate sentiment.

"The market has priced in bad sentiment for the April-June quarter, but if the outlook for July-September is bright, the market may rise further."

Brent crude oil for delivery in August was steady at $111.71 a barrel. ICE Brent futures lost 1 percent on Monday as worries about a resolution to the Greek debt crisis made investors more risk averse, traders said.

Gold inched up to $1,541.29 per ounce by 0150 GMT, after closing at $1,540.95 on Monday. Gold, one of the chief beneficiaries of worries about the security of currencies and other assets, set a record high of $1,575.79 per ounce in early May.

The definitive comments weighed on the euro and underscored how much is at stake for Greece, which is struggling to implement a deeply unpopular fiscal austerity plan necessary to win the next tranche of emergency aid from the European Union and International Monetary Fund.

Fractious euro zone finance ministers are trying to patch together a second aid package for Greece, with more official loans and, for the first time, some sort of contribution by private investors who hold Greek government bonds.

"Fitch would regard such a debt exchange or voluntary debt rollover as a default event and would lead to the assignment of a default rating to Greece," Andrew Colquhoun, head of Asia-Pacific sovereign ratings with Fitch, said at a conference in Singapore.

A month ago Fitch downgraded Greece's credit rating three notches to "B+" and warned it could cut the rating further into junk territory. At the time, the rating agency said an extension of the maturity of existing bonds would be considered a default.

Standard & Poor's cut Greece's rating to "CCC" from "B" on June 13, and warned that any attempt to restructure the country's debt would be considered a default.

Moody's has a Caa1 rating to Greece's sovereign debt, which implies a 50 percent chance of a default within three to five years.

Fitch's Colquhoun also reiterated that the rating agency would place the U.S. sovereign rating on watch negative if Congress did not raise the federal government's borrowing ceiling by August 2, and said if the U.S. government misses an August 15 coupon payment, then Fitch would place the rating on restricted default.

But it added it believed it was very likely that the debt ceiling would be raised and default would be avoided.

Fitch had made similar comments earlier this month and Moody's and S&P have issued warnings along the same lines. But Fitch was the first major ratings agency to say U.S. Treasury securities could be downgraded, even for a short period.

U.S. lawmakers working to rein in rising debt said on Monday they will have to make substantial progress this week to ensure the country retains its top-notch credit rating.

(Reporting by Masayuki Kitano, Writing by Kevin Plumberg; Editing by Kim Coghill)

After two days of crisis talks, the ministers effectively issued Athens an ultimatum, saying the Greek government, parliament and broader society had until July 3 to approve a new austerity package that includes privatization measures in order to secure the release of the next tranche of EU/IMF aid.

Greece risks defaulting on its debts if the next tranche, the fifth installment of 110 billion euros ($155 billion) of loans agreed with Athens in May 2010, is not released in time.

"The approval of the Greek parliament is absolutely essential and it will have to arrive in a timely fashion so we can take a decision on July 3," said Jean-Claude Juncker, who chairs the Eurogroup of the 17 euro zone finance ministers.

"It is clear that the (Greek) debt is sustainable, but the debt will only remain sustainable if Greece fulfills all its commitments which it agreed with the troika," he told reporters, referring to the European Union, International Monetary Fund and European Central Bank.

Finance ministers from the Group of Seven industrialized nations held a second conference call on Monday after discussing on Sunday night the potential impact on global financial markets if Greece were to default.

Both calls were organized by French Finance Minister Christine Lagarde, the favorite to be named as the IMF's new chief this month.

"We have a calendar; we have a roadmap," Lagarde told reporters in Luxembourg. "Efforts have to be undertaken, in the first place by Greece, which leaves here knowing that it has considerable parliamentary efforts to make."

In Washington, the White House restated its view that the crisis could pose a risk to fragile economic recoveries around the world if it spins out of control, but that the mechanism exists to contain it.

"It does create a headwind, and that's why it needs to be resolved for the global economy," said Jay Carney, the presidential spokesman. "We believe Europe, working with the Greek government, can resolve it."

Greece's newly appointed finance minister, Evangelos Venizelos, issued a statement shortly before Juncker spoke saying he would strive to ensure the already reworked austerity program was approved, possibly by June 28.

"The overriding aim is to develop a clear relationship of trust, to stabilize the situation, to have a disbursement of the fifth installment, Venizelos said. "The political time has been compressed a lot. Each day is of extreme importance and hence we cannot afford to waste a single hour."

Shoring up their ability to tackle any further problems in the euro zone, the ministers also rubber-stamped an agreement to increase the effective lending capacity of the current bailout fund, the EFSF, to 440 billion euros by increasing guarantees.

And they said the European Stability Mechanism, the permanent crisis fund that will replace the EFSF from June 2013, would not have preferred creditor status when it comes to loans to Greece, Ireland and Portugal, a change that eased concerns among private creditors about its structure.

ATHENS ON WATCH

In Athens, crowds of anti-austerity demonstrators gathered in the central square outside parliament, but there were no new clashes with police. Power workers began a strike and blackouts were expected in parts of the country.

In parliament, Greek legislators debated the highly unpopular plans, which aim to produce a further 6.5 billion euros in budget savings this year, and 28 billion through 2015, and raise 50 billion euros from the sale of state assets.

On Sunday, Prime Minister George Papandreou appealed to the nation to accept steps that certainly in the short term will make life harder for most citizens.

"The consequences of a violent bankruptcy or exit from the euro would be immediately catastrophic for households, the banks and the country's credibility," Papandreou said at the start of a confidence debate on his new crisis cabinet.

While some financial experts in Greece expect protest to die down and the package eventually to be approved, one Greek newspaper on Monday said the EU had treated Greece poorly.

Blaming "the stupidity of Europeans," the Eleftherotypia newspaper wrote in an editorial:

"Today it's at risk of becoming Europe's little whore. If the euro's 17 members do not understand that to save their economy they must become one federation, the euro will collapse and with it half of its economies."

NEW INSPECTIONS

Inspectors from the EU and IMF will make a further visit to Athens this week -- having just completed an inspection -- to examine changes the country wants to make to the plan, Olli Rehn, the EU's monetary affairs commissioner, said.

In order to impose a deadline on Athens, Juncker said he had already scheduled an extraordinary meeting of euro zone finance ministers for July 3, when the disbursement of the 12 billion euros will be approved -- if Greece keeps its side of the deal.

The euro weakened against the dollar marginally on Monday and the cost of insuring Greek and Italian debt against default rose, a reflection of the increasing risk of contagion across highly indebted euro zone states from Greece's problems.

Ratings agency Moody's said on Friday it could downgrade Italy's Aa2 rating in the next 90 days given concerns Greece's crisis could derail Italy's tepid recovery.

While it seems likely that Athens will eventually get the next tranche, as well as a further emergency loan program of around 120 billion euros up to the end of 2014, the net result is only to buy Greece more time -- the possibility of a debt restructuring in the longer-term, or even default on a portion of its debt, has not gone away.

After their meeting into the early hours of Monday, the euro zone ministers announced that they were ready to put together a second package of loans for Greece, despite the country having missed debt targets in the first package.

The second package, to be outlined by mid-July, will include more official loans and, for the first time, a contribution by private investors, who will be expected to voluntarily purchase new Greek bonds as existing ones mature.

(Additional reporting by John O'Donnell, Daniel Flynn, Annika Breidthardt and Julien Toyer in Luxembourg, and Renee Maltezou and George Georgiopoulos in Athens; Writing by Luke Baker; Editing by Mike Peacock/Ruth Pitchford/Ron Askew/Eric Walsh)