(Reuters) - Greek Finance Minister George Papaconstantinou said on Thursday his ruling Socialist party should remain stable ahead of a key parliamentary caucus meeting that will debate the government's policies. "At this very difficult moment, there is only one goal for all of us: stability, to keep the country and its economy on its feet, to continue without interruption the financing of the country by its lenders," Papaconstantinou told reporters. The meeting was called after two ruling party MPs resigned from their seats to protest the government's policies. Prime Minister George Papandreou plans to reshuffle his cabinet later on Thursday. (Reporting by Harry Papachristou)

After the Philadelphia Fed Survey showed manufacturing activity to be contracting at its fasted pace since July 2009, bond markets paradoxically weakened while stock indexes advanced. This may turn out to be a short term "fade," however, as 10yr notes are attempting to bounce on support dividing yesterday and today's yields in the mid 2.96's. 10yr yields are already back down to 2.953. Fannie Mae 4.0 coupon MBS are also bouncing back after an initial move weaker. Prices moved to 100-20 following the report, but have already recovered sharply to 100-27, 4/32nds up on the day and just better than the middle of their range today. With prices still well within the overall range though, implications for reprices in either direction are limited. If underlying benchmarks hold their supportive pivot point without yields rising into yesterday's lows, it could create an environment that's salubrious enough for MBS to get to reprice levels later today.

(Reuters) - Factory activity in the U.S. Mid-Atlantic region unexpectedly shrank in June to its lowest level in nearly 2 years in another sign of weakness in the manufacturing sector, a survey showed on Thursday. The Philadelphia Federal Reserve Bank said its business activity index fell to minus 7.7 in June from positive 3.9 the month before. It fell far short of economists' expectations for a rise to 6.8, according to a Reuters poll. It was the lowest level since July 2009. Any reading below zero indicates contraction in the region's manufacturing. The survey covers factories in eastern Pennsylvania, southern New Jersey and Delaware. The new orders index also fell, coming in at minus 7.6 from 5.4 in May, while inventories dropped to minus 8.5 from minus 5.4. New orders were at their lowest since June 2009.

Overnight trading, fueled by ongoing Euro-Zone concerns, proved to be hard to overcome as bond markets were initially reluctant to move weaker after better-than-expected economic data. Benchmark Treasuries came into the domestic session at the lowest yields of the year after a night of insanely high volume during the Asian and European sessions. Slower than might otherwise be expected, 10yr yields have crept back into the outer limits of their previous range moving from 2.89 early this AM to 2.94 currently. Fannie Mae 4.0 Coupon MBS are up 1/32nds at 100-23 after being up as high as 10/32nds earlier this morning. Prospects for loan pricing are uncertain given the volatility so far this AM, but for perspective, even after this morning's losses, MBS are now in the middle of the range seen yesterday afternoon AFTER the strong mid-day rally.

(Reuters) - New applications for U.S. jobless benefits dipped in the latest week but remained at levels that were too high to put a dent in the unemployment rate. The Labor Department said on Thursday new jobless claims fell to 414,000 in the week ended June 11 from an upwardly revised 430,000 in the prior week. Economists polled by Reuters had been looking for a smaller decline to 420,000. Claims have been above 400,000 for two months now, reflecting a rough patch in the recovery that has led to renewed weakness in an already anemic job market. (Reporting by Pedro Nicolaci da Costa, Editing by Chizu Nomiyama)

(Reuters) - U.S. housing starts rose more than expected and permits for future construction touched a five month high in May, a government report showed on Thursday, but any recovery will be hampered by a glut of pre-owned homes. The Commerce Department said housing starts rose 3.5 percent to a seasonally adjusted annual rate of 560,000 units, retracing almost half of April's steep decline. April's starts were revised up to a 541,000 unit pace, which was previously reported as a 523,000 unit rate. Economists polled by Reuters had forecast housing starts rising to a 540,000-unit rate. Compared to May last year, residential construction was down 3.4 percent. An oversupply of previously owned houses, especially foreclosed properties which sell well below their value, is dampening new home construction. A survey on Wednesday showed sentiment among home builders at its lowest in nine months in June. Last month, there was an increase in groundbreaking for both multi and single family homes. Starts in the West were the highest since August. Multi-family home starts rose 2.9 percent. The increase in the construction of multi-family units reflects a growing demand for rentals as relentless declines in house prices encourage Americans to delay home purchases and even give up properties whose mortgages are far higher than their values. Single-family home construction, which accounts for a large portion of the market, rose 3.7 percent. New building permits unexpectedly rebounded 8.7 percent to a 612,000-unit pace last month, the highest level since December. Economists had expected overall building permits in May to fall to a 558,000-unit pace. Permits were boosted by a 23.2 percent surge in the multi-family segment. Permits to build single-family homes rose 2.5 percent. New home completions climbed 0.4 percent to 544,000 units in May. (Reporting by Lucia Mutikani, Editing by Andrea Ricci)

(Reuters) - The U.S. current account deficit increased to $119.3 billion in the first quarter on strong imports , the Commerce Department said on Thursday. The deficit -- which measures the flow of goods, services and investments in and out of the United States -- represented 3.2 percent of U.S. gross domestic product, up from 3.0 percent in the fourth quarter. The current account gap amounted to $112.2 billion in the fourth quarter. Economists had been looking for the deficit to widen to $126.0 billion in the first quarter. The government revised current account data through the fourth quarter of 2010 to reflect changes in definitions and classifications. The deficit on goods and services rose to $140.8 billion in the first quarter from $118.7 billion in the final three months of 2010. Net financial inflows stood at $181.9 billion, up from $29.3 billion in the prior quarter. (Reporting by Lucia Mutikani, Editing by Andrea Ricci)