US RATE FUTURES-Strong durables recast Fed policy ideas

(Adds details, analyst comments, byline)

By Ros Krasny

CHICAGO, Aug 27 (Reuters) - Financial markets were more confident on Wednesday that the Federal Reserve will raise benchmark interest rates early in 2009 after July durable goods orders were reported stronger than expected.

"The manufacturing sector continues to look resilient to the weakness of the overall economy, buoyed by strength in exports," said David Sloan, analyst at 4CAST Ltd in New York.

In short-term interest rate futures, which reflect market expectations for Fed monetary policy, dealers pushed up implied U.S. benchmark rates for late 2008 and early 2009.

Perceived prospects for a year-end federal funds rate hike hit 40 percent against 32 percent late on Tuesday. Futures fully price a quarter-percentage-point increase, to 2.25 percent, by the end of the first quarter of 2009.

Orders for durable goods -- big-ticket items from washing machines to jet airplanes -- rose by 1.3 percent in July, having been forecast flat or even lower.

"The durable goods orders continue to defy numerous negative forces, notably weak underlying consumer demand and tightening financing criteria," said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut.

June's orders were revised to be up a matching 1.3 percent against the 0.8 percent reported previously.

The June and July outcomes suggested the U.S. manufacturing sector is in better shape than many pundits have guessed, helped by a years-long decline in the dollar that is now reversing.

"The risk must be that, in time, the combination of slowing global growth and a stronger dollar crimps exports, but for now they are the lifeline," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. (Editing by James Dalgleish)