U.S. home sales climb at fastest pace in 10 months

By Lucia Mutikani

WASHINGTON (Reuters) - New orders for long-lasting U.S.-made goods rose in February for the first time in seven months and new home sales rebounded, government data showed on Wednesday, suggesting the economic downturn might be easing a bit.

The Commerce Department said durable goods orders rose 3.4 percent to $165.6 billion in February, the biggest gain since December 2007, after a 7.3 percent drop the prior month. Sales of newly built U.S. single-family homes rose at their fastest pace in 10 months in February, it said in another report.

"The sky is no longer falling, we seem to have hit rock bottom. The data suggest that the weakest month of the recession possibly was January and now things will probably stabilize at this lower level," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

U.S. stocks rallied on the data, with the Dow Jones industrial average ending 89.84 points higher at 7,749.81 and the S&P 500 closing up 7.76 at 813.88.

The upbeat economic reports and tepid demand in a record-large auction of five-year U.S. Treasury notes sent benchmark government bond yields, which move inversely to prices, rising to their highest in a week.

Recent data, including retail sales and housing, have pointed to some signs of a moderation in the pace of the 15 month housing-led recession.

New durable goods orders excluding transportation rose 3.9 percent in February, the largest gain since August 2005, the Commerce Department said. Orders for machinery soared 13.5 percent in February, the biggest increase since March 2004.

One of the few weak spots in the report was civilian aircraft and parts, which dropped 28.9 percent after Boeing reported only four new aircraft orders in the month after 18 orders in January. Motor vehicle and parts eased 0.6 percent after a 7.6 percent tumble in January.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, expanded 6.6 percent in February. The prior month was revised to an 11.3 percent drop, previously reported as a 5.7 percent decline.

Despite the upbeat data, analysts said first-quarter gross domestic product would still contract at more or less the same pace as in the October-December quarter.

Output fell at a 6.2 percent annualized rate in the fourth quarter, but this figure is likely to be revised down to show a contraction of 6.5 percent when the government releases its final estimates on Thursday, according to analysts' estimates.

INVENTORIES A DRAG

"While consumption expenditures have apparently stabilized, investment and exports continue to plummet," said Harm Bandholz, an economist at Unicredit Markets and Investment Banking in New York. "Private inventories will be a significant drag on GDP growth as well."

Inventories of manufactured durable goods fell for a second consecutive month in February, easing 0.9 percent to $336.8 billion, after dropping 1.1 percent in January, the Commerce Department said.

Manufactured durable goods shipments, which contribute to the GDP number, fell for the seventh consecutive month in February, slipping 0.5 percent to $179.1 billion.