WRAPUP 2-US July factory orders strong, Aug auto sales off

* Factory orders rose more than expected in July

* GM, Ford announce double-digit sales slumps in August

* Stocks rise, Treasury prices gain, dollar surges (Recasts, updates markets, adds auto sales)

By Mark Felsenthal

WASHINGTON, Sept 3 (Reuters) - New orders at U.S. factories jumped more than expected in July, a government report showed on Wednesday, but U.S. automakers reported dismal sales in August, raising fears of renewed economic headwinds.

Factory orders rose 1.3 percent after an upwardly revised 2.1 percent gain in June, the Commerce Department said.

Economists polled by Reuters were expecting a 1 percent gain. Factory orders have risen for five months in a row.

"It fills in the picture of a moderately recovering U.S. economy," said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey.

General Motors and Ford posted double-digit U.S. sales declines, however, as uncertain economic conditions undercut buying incentives offered by automakers. GM's August sales tumbled 20.4 percent while Ford's fell 26.6 percent, forcing them to announce production cuts in the second half of the year.

Adding to a picture of sluggish economic activity, the Federal Reserve's anecdotal Beige Book survey of conditions said consumer spending was slowing and exports, long a bright spot, were showing some signs of fading.

"With generally unfavorable news on both the growth and inflation fronts, the information in this report does not suggest the Fed will change the funds rate," said Lehman Brothers economist Michael Hanson in a note to clients.

The Fed has held benchmark U.S. interest rates steady at 2 percent since April to help the economy move beyond a deep housing slump and tight credit.

Stocks see-sawed in and out of positive territory as evidence of anemic growth in the world economy stirred worry about the outlook for consumer spending and corporate profits in months ahead. The blue-chip Dow Jones industrial average ended the day slightly higher but the S&P and Nasdaq slipped.

Treasury debt prices rose, pushing benchmark U.S. Treasury yields down to four-month lows as weaker oil prices eased bond investors' inflation expectations. Oil prices fell to around $109 a barrel on Wednesday, well down from record highs of over $147 a barrel hit in early July.

The dollar surged to its highest against the euro since January on reports of weakening growth in the euro zone.

LABOR MARKET CHALLENGES