CORRECTED - WRAPUP 1-US July factory orders stronger than expected

(Corrects second sentence of 10th paragraph to say payrolls are expected down for eighth straight month, not seventh)

*Factory orders rose more than expected in July

*Stocks rise, dollar gains on data

*Layoffs fell in August, but jobs market still weak

By Mark Felsenthal

WASHINGTON, Sept 3 (Reuters) - New orders at U.S. factories jumped more than expected in July, helped by a rise in transportation orders, a government report showed on Wednesday, as exports buoyed an economy hit by a deep housing downturn and tight credit.

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

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

Stocks rose and the dollar extended gains on the data, which pointed to resilience in manufacturing, where strong export demand has kept the broader economy from slipping into recession. However, U.S. Treasury prices fell. Analysts expect the surge in exports to tail off in the latter part of the year as the dollar strengthens and global demand weakens.

"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.

LABOR MARKET CHALLENGES

However, the labor market showed persistent softness. U.S. companies' announced layoffs in August fell from July, but were still much higher than a year ago, a report on Wednesday showed.

Downsizing at U.S. companies last month totaled 88,736, 14 percent below June but 12 percent higher than August 2007, employment consulting firm Challenger, Gray & Christmas Inc. said.

"We have not seen this level of summer job cutting since 2002, when the country was still struggling to recover in the wake of the 2001 recession and September 11 (attacks)," said John Challenger, chief executive officer of Challenger, Gray & Christmas, in a statement.

Year-to-date, planned layoffs total 667,996, up 29 percent from 515,855 during the same eight-month period in 2007.

The government is set to release its employment report on Friday. Analysts are expecting payrolls to fall for the eighth straight month.

Moderating interest rates brought a glimmer of hope for long-slumping U.S. housing markets.

Applications for U.S. home mortgages rose last week as rates for home loans eased from recent highs, according to data from an industry group.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity climbed 7.5 percent to 453.1 last week. It was the highest since mid-July.

In its report on factory orders, the Commerce Department said that transportation orders jumped 3.2 percent in July after a 1.8 percent drop a month earlier. When transportation orders were stripped out, factory orders still rose 1 percent, reflecting gains in orders for metals, machinery, and nondurable goods.

Durable goods orders rose 1.3 percent, as expected. June's rise in durables orders was revised up to 1.4 percent.

Inventories rose for the 10th time in the last 11 months, but the inventory-to-shipments ratio dipped to 1.20 months supply from 1.22 percent, the lowest since July 2007, the Commerce Department said. (Additional reporting by Al Yoon, Richard Leong and Nick Olivari; Editing by Neil Stempleman)