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.
Economists had expected orders to rise 1.5 percent in May.
Durable goods orders are a leading indicator of manufacturing health.
An improvement across the board in May and revisions to April's figures, which showed smaller declines than previously reported, pointed to underlying strength in a sector that has powered the economic recovery.
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 are constraining manufacturing.
The report was "a little better than you might have expected given the gloomy news that's coming out of the manufacturing surveys. So that's a small plus," said Nigel Gault, chief U.S. economist, IHS Global Insight in Lexington, Massachusetts.
U.S. stocks extended gains on the data, while prices for Treasury debt fell.
The report also 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, the department said in another report, up from the 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.
Orders 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)
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