U.S. core capital goods orders post biggest gain in six months

WASHINGTON, Aug 25 (Reuters) - New orders for U.S.manufactured capital goods rose for a second straight month in July as demand for machinery and a range of other products

picked up, offering a tentative sign that a business spending downturn was starting to ease.

The Commerce Department said on Thursday non-defense capital goods orders excluding aircraft, a closely watched proxy forbusiness spending plans, increased 1.6 percent last month. That was the largest gain since January and followed an upwardly revised 0.5 percent rise in June. These so-called core capital goods orders were previously reported to have gained 0.4 percent in June. That was the first back-to-back increase since January 2015.

Economists polled by Reuters had forecast core capital goods orders rising only 0.3 percent last month. Business spending has contracted since the fourth quarter of 2015, in part as companies slashed capital spending budgets in response to lower oil prices. The increase in core capital goods orders comes as oil and gas drilling activity has been rising in recent months. Still, business investment is likely to be tepid in the third quarter amid uncertainty over the global economy after Britain's decision to leave the European Union and ahead of the U.S. presidential election, economists say.

Heavy machinery maker Caterpillar (NYSE: CAT) last month lowered its 2016 forecast, citing sluggish demand in mining and other industries. Weak business spending contributed to holding down economic growth to 1.0 percent in the first half of 2016. Shipments of core capital goods, which are used to calculate

equipment spending in the government's gross domestic product measurement, fell 0.4 percent last month after decreasing 0.5 percent in June.

A 10.5 percent jump in demand for transportation equipment lifted overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, by 4.4 percent last month. That followed a downwardly revised 4.2 percent drop in June.

Durable goods orders were previously reported to have declined 3.9 percent in June. Civilian aircraft orders surged 89.9 percent in July, but demand for automobiles was flat.

Last month, there were hefty increases in orders for machinery, primary metals, fabricated metal products, computers and electronic products, as well as electrical equipment, appliances and components.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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