An unexpected jump in U.S. durable goods orders last month backed hopes that the economy was healing and this message was reinforced by a pick-up in home mortgage applications last week.
New orders for long-lasting U.S. manufactured goods rose by a much stronger-than-expected 1.8 percent in May, Commerce Department data on Wednesday showed.
Analysts polled by Reuters had forecast durable goods orders would decline 0.6 percent last month. May's increase, the third gain in 4 months, followed a revised 1.8 percent gain in April.
U.S. stock index futures rose on the much stronger-than-expected durables report, the dollar pared gains and U.S. government bond prices fell, although trading was also somewhat overshadowed by a Federal Reserve policy statement due later.
"The economy is bottoming here, and we're looking for the Fed to maybe change its statement slightly and maybe start to suggest a more neutral balance of risk. A nod, basically, to an exit strategy," said Kim Rupert at Action Economics LLC in San Francisco.
The Fed is due to deliver its policy decision about 2:15 p.m. (1815 GMT). It is expected to leave interest rates unchanged in a range between zero and 0.25 percent, and many economists think it will lean against rate hike speculation by emphasizing they will stay low for an extended period.
The U.S. central bank is also likely to stress that the economy remains fragile, although acknowledging signs that activity is picking up here and there.
Manufacturing, which accounts for about one-third of the economy, provides a good barometer for overall business health, and the May durable goods orders report showed solid gains.
New orders excluding transportation advanced 1.1 percent last month, compared with a forecast for a 0.4 percent decline, buoyed in part by a 7.7 percent rise in new machinery orders. This was the largest percentage increase in that category since March 2008, the Commerce Department said.
New orders excluding defense were 1.4 percent higher, versus a Reuters' poll prediction for a 0.4 percent drop.
More importantly, non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, jumped 4.8 percent in May, the largest gain since September 2004. May's sharp rise compared with forecasts for a 0.6 percent drop and followed a revised 2.9 percent fall in April.
"The numbers point to a stabilization, but certainly not a robust recovery," said Keith Hembre, chief economist at First American Funds in Minneapolis.
HOMES ON THE REBOUND
A separate report showed that U.S. mortgage applications climbed last week from a seven-month low, the Mortgage Bankers Association said, adding to emerging signs that the three-year housing market collapse may be abating.
Demand for home loans rose after four straight weekly declines, as U.S. mortgage rates dipped and more borrowers applied to buy houses as well as refinance.
The trade group's seasonally adjusted mortgage applications index, which includes both purchase and refinance loans, rose 6.6 percent last week.
