UPDATE 2-Gauge of U.S. business investment plans edges lower

Mon Feb 4, 2013 12:01pm EST

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* December gauge of business investment falls 0.3 percent

* Overall new factory orders up 1.8 percent

* Military and civilian aircraft orders rise sharply

By Jason Lange

WASHINGTON, Feb 4 (Reuters) - A gauge of U.S. business investment plans dropped in December, a possible sign companies were losing confidence in the economy's strength due to fears over tighter fiscal policy.

The data released on Monday by the Commerce Department also gave some positive signals, with a big jump in defense industry orders pointing to a reversal in some of the surprise fall in U.S. economic output late last year.

Economists have expected businesses to invest more timidly because of uncertainty over government spending cuts and tax increases, which had been scheduled to kick in last month.

Signs of any blow to confidence have been difficult to discern from economic data, but Monday's report on factory orders gave a hint of weakness in sentiment during December.

New orders for capital goods outside of the defense and aircraft industries declined 0.3 percent during the month, according to revised data. That breaks some of the momentum from two prior months of strong gains in the reading, which is seen as a proxy for investment plans.

"The pace of investment growth will likely improve only modestly," economists at Well Fargo said in a note to clients, citing the data.

Previously, the government had estimated the proxy for investment plans had gained 0.2 percent in December.

The factory orders report helped push U.S. stock prices lower on Monday. Yields on U.S. government debt also declined.

Under a last minute deal, Congress avoided or postponed many of the austerity measures that were due to begin in January, which would likely have sent the U.S. economy into recession.

The economy still faces the threat of across-the-board spending cuts scheduled for March, as well as the possibility the government might default later this later year.

Overall factory orders rose 1.8 percent in December. That was below the median forecast of 2.2 percent by analysts polled by Reuters.

Outside of the transportation industry, new orders rose a meager 0.2 percent, with new orders for consumer goods down 0.1 percent.

More volatile components helped make up for that softness, with civilian aircraft orders up 10.1 percent.

Military aircraft orders surged by 56.4 percent, a sign defense spending could rebound after declining sharply in the fourth quarter. New orders for military capital goods - a relatively small category - rocketed up 110.3 percent.

Outside of the defense industry, new factory orders rose a modest 0.3 percent.

Data last week showed a drop in defense spending dragged heavily on the economy in the fourth quarter. An advance estimate showed gross domestic product posted a surprise contraction, although that report showed consumer spending was providing underlying strength to the economy.

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