Case-Shiller said home prices are tanking. OFHEO backed that up. The Bureau of Labor Statistics said producer price inflation took off like a bottle rocket. The Conference Board said consumer confidence hit a five-year low.And RealtyTrac said home foreclosures jumped 57% in January. All in one day.

And the home building stocks rallied, powerfully at that, with the S&P Home Builders ETF (AMEX:XHB) up 6.4% to $22.58. Among the individual builders, Avatar (NASDAQ: AVTR) was up 10.6% to $48.45; Beazer (NYSE:BZH) up 7.6% to $8.36; Brookfield (NYSE:BHS) up 6.6% to $16.85; Centex (NYSE:CTX) up 9.3% to $26.05; D.R. Horton (NYSE:DHI) up 6% to $16.43; Hovnanian (NYSE:HOV) up 9.3% to $10.82; KB Home (NYSE:KBH) up 4.88% to $26.21; Lennar (NYSE:LEN) up 8.7% to $20.41; M.D.C. (NYSE:MDC) up 3.9% to $45.11; M/I Homes (NYSE:MHO) Up 2.6% to $18.42; Meritage (NYSE:MTH) up 2% to $16.84; NVR (NYSE:NVR) up 6% to $593.10; Orleans (AMEX:OHB) up 1.2% to $4.30; Pulte (NYSE:PHM) up 5% to $15.49; Ryland (NYSE:RYL) up 4.6% to $29.61; Standard Pacific (NYSE:SPF) up 9.4% to $4.89; Toll Brothers (NYSE:TOL) up 5.5% to $23.12 and WCI (NYSE:WCI) up 3.1% to $4.33.

The surge in the face of bad news gave new credibility to the notion that a bottom, at least in the builder stocks, was reached in January. Real estate-cum-media-magnate Sam Zell said in an interview on CNBC that he beleived the housing market had bottomed. Further fueling the rally was a rumor that a group from the United Arab Emirates was interested in buying Lennar, according to a Reuters report. On the other hand, the overall market was up a little less than 1% on the Dow, with the NASDAQ up 0.75% and the S&P up 0.69%, which may have led to short covering in some of the builder stocks with weak balance sheets. Trading volume on the Dow was in line with its five-day trend, but volume in several of the the builder stocks was heavy.

Eyes on the Street now turn to Toll Brothers, which is scheduled to report first quarter earnings before market open on Wednesday. Analysts are expecting a loss of 44 cents a share.