New orders for long-lasting U.S. manufactured goods, excluding transportation items, surged in November and new applications for jobless aid hit the lowest level in 15 months last week, pointing to a firmly entrenched economic recovery.

The U.S. Commerce Department said on Thursday that durable goods orders, excluding transportation, rose 2 percent last month, more than reversing October's 0.7 percent drop and beating market expectations for a 1 percent rise.

However, a plunge in orders for civilian aircraft tempered overall orders, which rose only 0.2 percent, below expectations for a 0.5 percent increase.

A separate Labor Department report showed initial claims for state unemployment benefits fell 28,000 to 452,000 last week. That was the lowest level since early September 2008. Economists expected a drop of only 10,000.

Both of these series point to ongoing healing in the economy, said Robert Dye, senior economist at PNC Financial Services in Pittsburgh. He said the figures suggested economic growth in the fourth quarter would be stronger than had been expected with a moderate recovery through 2010.

Analysts now see U.S. GDP growing at an annual pace of between 4 percent and 5 percent in the fourth quarter, up from a 2.2 percent rate in the July-September period. Waning government support, however, is expected to weigh on growth in 2010.

U.S. stocks rallied on the data, with all three indexes closing at 2009 highs in a shortened preholiday session. Prices for U.S. government debt fell. The data eased concerns about the durability of the recovery that were revived by a report Wednesday that showed an unexpected drop in new home sales.

LABOR MARKET MENDING

The labor market is slowly mending after the worst U.S. recession since the 1930s. Employers cut the fewest number of jobs in more than a year last month, and the unemployment rate dipped to 10 percent from a 26-1/2 year high of 10.2 percent in October.

The improving labor market tone was underscored by a decline in the four-week moving average of new claims, which reached the lowest level in nearly 15 months last week.

The average, which is considered a better measure of underlying labor market trends than initial claims figure, dropped to 465,250, closing in on the 450,000 mark that some analysts say will indicate labor market stabilization.

We might even see some job growth when we get that December jobs number, said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco, referring to data the government will release in early January.

The durable goods report showed strength in orders in nearly every sector last month. Durable goods orders are a leading indicator of manufacturing activity and tend to give good indication of overall business health.

In a sign that businesses are starting to spend again, non-defense capital goods orders, excluding aircraft, jumped 2.9 percent last month after dropping 2 percent in October.

This suggests that the fourth-quarter recovery in business investment was a bit stronger than we previously feared. This report supports our view that GDP will expand by about 5 percent annualized in the fourth quarter, said Paul Ashworth, senior U.S. economist at Capital Economics in Toronto.

Durable goods inventories fell 0.2 percent in November after being flat the prior month. Shipments increased 0.3 percent, adding to October's 0.7 percent gain.

The factory recovery is broadening and may be accelerating, although it remains a question as to how much a leveling in inventory liquidation as well as fiscal stimulus is powering the improved performance, said Cliff Waldman, an economist for Manufacturers Alliance/MAPI in Arlington, Virginia.

(Additional reporting by Emily Kaiser in Washington, Chuck Mikolajczak and Richard Leong in New York; editing by Neil Stempleman and Jeffrey Benkoe)

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