New orders for a wide range of long-lasting U.S. manufactured goods rose in August and business spending plans rebounded strongly, the latest sign a sharp summer slowdown in the economy was abating.

Other data Friday showing new home sales were flat last month underscored the many obstacles to the recovery. Still, the durable goods report diminished concerns of a double-dip recession and implied a modest pick-up in output.

For people looking for a double dip, the durable goods report told you the third quarter is going to look pretty good for capital spending. The markets reacted to that, said John Canally, economist at LPL Financial in Boston.

Durable goods orders excluding transportation rose 2.0 percent after falling by 2.8 percent in July, the Commerce Department said, the largest increase since March. The rise was above market expectations for a 1.0 percent gain.

But a decline in aircraft and motor vehicle bookings depressed overall orders 1.3 percent, the largest fall in a year, after a 0.7 percent gain in July. A gauge of business spending plans rebounded 4.1 percent after July's 5.3 percent drop.

Stocks on Wall Street rose as investors welcomed the revival in business investment, while government debt prices fell. The U.S. dollar dropped against a basket of currencies to its lowest level since February.

In another report, the department said new single family home sales were at a 288,000 unit annual rate in August, unchanged from July's rate and the second lowest pace on record. However, the supply of houses on the market tumbled to the lowest in 42 years.

SIGNS OF STABILITY

The housing market is showing some signs of stability after a downward spiral following the end of a tax credit for home buyers in April. Data this week showed home building rose in August and sales of previously owned houses crawled off a 13-year low.

But a 9.6 percent unemployment rate and still tight access to credit are keeping potential home buyers on the sidelines.

While the low level of mortgage rates would seem to be an enticement for sales, mortgage lending standards are only beginning to loosen, said Peter Muoio, a senior principal at Maximus Advisors in New York.

We need to see stronger job growth and reduced uncertainty before households will be ready and willing to jump back into the housing market.

With housing still struggling for footing, builder KB Home resorted to cost cutting, resulting in a smaller-than-expected third-quarter loss. The homebuilder issued a cautious outlook for the near-term.

Although other data such as private sector employment and retail sales have also suggested an easing of the harsh conditions that gripped the economy in the second quarter, domestic demand remains lackluster as households struggle with falling wealth.

The Federal Reserve this week said it was prepared to pump more money into the economy if needed to stimulate the recovery and avert a crippling phase of deflation.

Analysts believe the U.S. central bank could announce a new asset purchasing program as early as next month.

Unless the economic data improves markedly between now and then, they will probably start at the next meeting (in November) and maybe test it for a while. It will be after the elections and therefore less political, said Canally.

The economy's poor health and a record budget deficit will influence the outcome of the November 2 mid-term elections, which could see the Republicans wrest control of Congress from the Democratic Party.

Even though the durable goods orders report showed some strength, analysts expect manufacturing growth to slow as demand remains subdued. Manufacturing has been leading the economy's recovery from the worst recession in 70 years.

Durable goods inventories rose 0.4 percent after increasing 0.6 percent in July. Shipments, which go into the calculation of gross domestic product, declined 1.5 percent last month, while unfilled orders dropped for a second straight month.

Economists at Goldman Sachs also noted that the shipments-to-inventories ratio -- a useful leading indicator for industrial activity -- dropped, while the year-over-year increase has slowed sharply.

Despite today's stronger-than-expected release, we therefore expect a further slowdown in industrial activity in coming months, they wrote in a note.

(Editing by Andrea Ricci)

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