A handful of diversified U.S. manufacturers posted results that topped Wall Street estimates, boosting investor confidence as they coped with the worst recession in decades.

But companies including Tyco International Ltd , Cummins Inc , Parker Hannifin Corp
maintained a cautious view on the economy's heading on Thursday. Tyco and Cummins held their full-year outlooks steady, and Parker set a fiscal 2010 target below analysts' expectations.

We anticipate that conditions will not improve appreciably in our markets for the balance of this calendar year, said Don Washkewicz, chief executive of Parker Hannifin, which makes motion control systems for industrial and aerospace users.

One big factor holding back the sector is the slump in commercial construction, which is crimping demand for building components and vehicles used by work crews.

Investors are starting to realize there was an overbuild in segments of nonresidential construction, so there are a lot of concerns about refinancing over the next two to three years as values come down, said Guaylon Arnic, an analyst for Profit Investment Management, who follows the industrial sector. A lot of the industrials do a lot of business in that area.

He noted that most of the manufacturers who have topped Wall Street's earnings estimates this month did so by cutting costs aggressively. That strategy has been effective through the recession so far, but investors don't think it will be sustainable over a long period of time.

Industrial toolmaker Kennametal Inc said the end of the slump may be approaching and expects conditions to begin to turn by the start of next year. On Thursday, it set a profit target for its fiscal year ending June 30, 2010, that topped the average analyst expectation, according to Reuters Estimates.

Shares of Kennametal climbed 15.4 percent to $22.85, while Cummins rose 6 percent to $42.15, and Tyco gained 4 percent to $29.96, all on the New York Stock Exchange. Parker Hannifin added 10 cents to $47.08, also on the NYSE.

The Standard & Poor's capital goods industry group <.GSPIC> was up 3.6 percent.

SIGNS OF 'STABILIZATION'

Industrial conglomerate Tyco said profit dropped 40 percent in its third fiscal quarter, but still topped expectations. It set a fourth-quarter earnings target below Wall Street's view, saying higher corporate expenses and a higher tax rate could crimp results.

We continue to see stabilization in our order activity ... with slight improvement in fire, safety products and flow control, CEO Ed Breen said on a conference call. It's much too early to draw any conclusions from these numbers.

Parker Hannifin reported an 80 percent drop profit in its fiscal fourth quarter, less severe than analysts expected. But it set a fiscal 2010 profit target well below Wall Street's view.

Cleveland-based Parker posted an operating loss at its international segment, noting that it took longer to cut jobs outside the United States.

Deutsche Bank analyst Nigel Coe said Parker Hannifin's order rate deteriorated, which could suggest revenue will keep deteriorating into the first half of 2010.

Cummins' earnings fell 81 percent in the face of slack demand for diesel engines and power generation products. The Columbus, Indiana-based company kept its full-year profit and sales forecasts steady even as it beat expectations in the second quarter, saying it expected no quick pickup in demand.

The economic climate continues to be extremely challenging, and we are managing our business under the assumption that we won't see any recovery in our markets in 2009, Tim Solso, the Cummins chairman and CEO, said.

Specialty truck maker Oshkosh Corp recorded a deeper-than-expected loss, as a worldwide slowdown in construction activity eroded demand for aerial work platforms, cement mixers and other large vehicles used by builders.

The fiscal third-quarter loss from continuing operations was $22 million, or 30 cents a share, versus a profit of $102 million, or $1.36 a share, a year ago. Analysts expected 19 cents.

Oshkosh shares fell 2.5 percent to $26.19.

Kennametal recorded a $33 million net loss in its fiscal fourth quarter and warned that results from its current first quarter may be worse.

But the Latrobe, Pennsylvania-based company believes global industrial demand is bottoming out and expects conditions to begin to improve by early next year.

It set a profit target of 45 cents to 65 cents a share for its fiscal year ending June 30, 2010, topping the average view of 42 cents per share.

(Writing by Scott Malone in Boston; editing by Jeffrey Benkoe)