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WASHINGTON (Reuters) - New orders for U.S. manufactured goods and a gauge of business spending plans rose in May, easing fears of a sharp slowdown in factory activity.
Durable goods orders increased 1.9 percent after dropping 2.7 percent in April, the Commerce Department said on Friday.
An improvement across the board in May and revisions to April's figures that showed smaller declines than previously reported, pointed to underlying strength in a sector that has powered the economic recovery.
Economists had expected durable goods orders, a leading indicator of manufacturing health, to rise 1.5 percent in May.
The report came as a relief to investors after recent regional factory data had shown some signs of fatigue. Supply chain disruptions after the March earthquake and tsunami in Japan have been constraining manufacturing.
"The strong rebound in core durable goods orders in May is an encouraging sign, particularly in light of the loss of momentum in the manufacturing sector evident in recent survey reports," said Peter Newland, a senior economist at Barclays Capital in New York.
Prices for U.S. government debt showed little change, while stocks on Wall Street opened lower after a brief suspension in the trading of some big Italian banks raised new concerns about the European debt crisis.
The dollar was little changed against a basket of major currencies.
The report supported views the sluggish economy would regain momentum in the second half of the year.
The economy grew at an annual rate of 1.9 percent in the first quarter, the department said in another report, up from a previously estimated 1.8 percent. The revision was in line with economists' expectations.
The economy expanded at a 3.1 percent rate in the fourth quarter.
"This supports our view that the economic 'soft patch' will not endure meaningfully into the second half," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank in New York.
"It also leads us to wonder whether the recent, sharp declines in various production gauges, such as the New York Empire and Philly Fed surveys, were a reaction to negative news earlier in the quarter."
The weak New York Fed and Philadelphia Fed factory surveys have raised the risk the Institute for Supply Management's index of national factory activity could contract in June after 22 months of expansion.
The survey is scheduled for release on July 1.
Durable goods orders in May were a buoyed by a 36.5 percent jump in volatile aircraft bookings. Boeing received 27 aircraft orders, up from just two in April, according to information posted on the plane maker's website.
Motor vehicle orders rose 0.6 percent after plunging 5.3 percent the previous month, suggesting some improvement in auto production, which has been hit by a shortage of parts from Japan.
Excluding transportation, durable goods orders increased 0.6 percent after a revised 0.4 percent decline in April, previously reported as a 1.6 percent fall. Economists had expected this category to rise 0.9 percent.
Outside of transportation, orders for machinery, primary metals, capital goods, computers and electronic products all rose.
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, rebounded to increase 1.6 percent last month after a revised 0.8 percent fall in April.
Economists had expected a 1.0 percent increase from a previously reported 2.3 percent drop.
Shipments of non-defense capital goods orders excluding aircraft, which go into the calculation of gross domestic product, increased 1.4 percent after falling 1.5 percent in April.
Reporting by Lucia Mutikani; Editing by Neil Stempleman