* Business spending plans gauge rises 1.7 percent
* Core capital goods shipments fall for 4th straight month
* Durable goods orders flat, up 1.5 pct ex-transportation
* House prices rise for eighth straight month in September
By Lucia Mutikani
WASHINGTON, Nov 27 A gauge of planned U.S.
business spending increased in October by the most in five
months, raising cautious optimism that the sharp cutbacks in
capital investment during the summer are abating.
Fears of deep reductions in government spending and big tax
hikes early next year, a combination known as the fiscal cliff,
had caused firms to hunker down.
But orders for non-defense capital goods excluding aircraft,
a closely watched proxy for business spending plans, rose 1.7
percent last month, the Commerce Department said on Tuesday.
"While the improvement in demand offers some encouragement
that the worse of the malaise in capital investment may be
behind us, there is little to suggest that this may be the
beginning of any meaningful upturn," said Millan Mulraine, a
senior economist at TD Securities in New York.
The increase in so-called core capital goods orders
confounded economists' expectations for a 0.5 percent fall.
Lawmakers and the Obama administration are engaged in talks
to avoid automatic spending cuts and tax increases that could
suck $600 billion from the economy early next year and fuel a
fresh recession. Few visible signs of progress have emerged.
"With intense focus on the fiscal cliff and continued
uncertainty surrounding the economic outlook in the new year, it
remains to be seen whether the October advance can be
maintained. It's not clear that it can be," said Omair Sharif,
an economist at RBS in Stamford, Connecticut.
"One month does not make a trend and the trend firmly shows
firms are still in a kind of a wait-and-see mode in terms of
CONSUMERS MORE BULLISH
Given the lag between orders and shipments, economists
expect business investment to remain a drag on economic activity
in the fourth quarter.
Shipments of core capital goods declined in October for a
fourth straight month, and economists said the stronger orders
might not translate into improved shipments until early 2013.
Still, a few economists bumped up their meager
fourth-quarter GDP forecasts slightly because the drop in
shipments was smaller than they expected. Core goods shipments
are used to calculate business spending on equipment and
software in the gross domestic product report.
In the third quarter, business spending tumbled for the
first time since the 2007-09 recession ended, weighed down by
the fiscal cliff, Europe's long-running debt problems and
slowing global demand.
While weakness in business spending has been restraining
growth, the housing market is gaining momentum and consumer
confidence is more bullish, which should support the recovery.
Single-family home prices rose for an eighth straight month
in September, a separate report showed. The Standard &
Poor's/Case Shiller composite index of 20 metropolitan areas
gained 0.4 percent in September on a seasonally adjusted basis.
Home building is expected to add to growth this year for the
first time since 2005 and firming home prices bode well for
residential construction activity.
"The strengthening in home prices is a plus for growth
through various channels, including increased consumer spending
because of wealth and confidence effects," said Jim O'Sullivan,
chief U.S. economist at High Frequency Economics in Valhalla,
A third report showed consumer confidence hit a 4-1/2 year
high in November. Economists, however, warned that the fiscal
cliff could erode sentiment in the months ahead.
Stocks on Wall Street ended down as investors worried over
the lack of progress in working out a deal on the government's
budget problem, while prices for U.S. Treasury debt eked out
modest gains. The dollar firmed against a basket of currencies.
Orders for U.S.-made durable goods -- items meant to last
three years or more -- were unchanged in October as gains in
machinery, fabricated metal products, and computer and
electronic products offset the drag from automobiles, defense
goods and civilian aircraft.
Economists had expected durable goods orders to fall 0.6
percent last month. They rose 9.2 percent in September.
Excluding transportation, orders rose 1.5 percent in October
after increasing 1.7 percent the prior month.