WASHINGTON — Setting up a certain fight with big business, President Obama is proposing a new regulatory agency to police lenders and protect consumers in credit, savings and other banking transactions.

The consumer agency and a newly empowered Federal Reserve will be two of the central elements of a broad overhaul of the financial regulatory system that the president will announce tomorrow, officials said.

Already the nation's central bank, the Federal Reserve would supervise large financial institutions that are considered so big that their failure could undermine America's economy, according to the administration proposal.

HOME CONSTRUCTION INCREASES 17.2%

WASHINGTON — Fresh signs that the economy is stabilizing — though at very low levels — emerged yesterday in reports that home construction rose more than expected last month and wholesale prices remain in check.

The building of new homes and apartments jumped 17.2 percent to a seasonally adjusted annual rate of 532,000 units from April's record low of 454,000 units, the Commerce Department said. Building permits, an indicator of future activity, rose 4 percent to an annual rate of 518,000 units, also better than expected.

RECOVERY EXPECTED IN NEXT FEW MONTHS

WASHINGTON — The nation's largest banks expect the economy to recover from its deep slump by late summer but remain weak until next year.

The American Bankers Association's Economic Advisory Committee, which includes economists from Wells Fargo & Co., PNC Financial Services Group, Morgan Stanley and others, expects gross domestic product to increase 0.5 percent in the July-September quarter, after falling a projected 1.8 percent in the April-June period.

Federal Reserve Chairman Ben Bernanke also says the economy could recover by the end of this year. But the unemployment rate will keep rising even after the recovery begins, the committee said, peaking at 10 percent in the first three months of 2010.

AUTO SUPPLIERS DENIED MORE AID

WASHINGTON — The Obama administration has turned down a request by auto suppliers for up to $10 billion in additional federal aid to help the parts companies deal with the bankruptcies of General Motors and Chrysler.

The Treasury Department said in a statement yesterday that an existing $5 billion support program for auto parts suppliers was playing an important role in stabilizing the nation's auto supply base.

Suppliers have lobbied for $8 billion to $10 billion in loan guarantees to help them raise money to buy raw materials and pay employees as Chrysler and GM resume production.