width=264Pending sales of previously owned U.S. homes hit a five-month high in March as buyers rushed to sign contracts before a tax credit expired, while a jump in factory orders pointed to manufacturing strength.

The data on Tuesday further confirmed the economic recovery was gaining more muscle.

The National Association of Realtors (NAR) said its Pending Home Sales Index, based on contracts signed in March, increased 5.3 percent to 102.9, building on the prior month's revised rise of 8.3 percent.

Analysts polled by Reuters forecast pending home sales rising 4 percent in March. Compared to March 2009, the index was 21.1 percent higher. Pending sales lead existing home sales by one to two months.

Separately, new orders for manufactured goods received by U.S. factories rose unexpectedly by 1.3 percent in March after an upwardly revised 1.3 percent gain in February, initially reported as a 0.6 percent rise, the Commerce Department said.

Economists looked for a decline of 0.1 percent.

The housing and factory data fit with what we are seeing -- that the economy is still showing signs of improving, said Mark Bonhard, a senior wealth manager at Rehmann Financial in Cleveland.

U.S. stocks ignored the reports, hovering at sharply lower levels as investors questioned whether Greece could tackle its debt problems. U.S. Treasury debt prices were steady at higher levels, while the dollar held gains versus the euro.

Although the rise in pending home sales in March was due to the tax credit for first-time and repeat buyers, it bode well for the spring selling season.

Prospective buyers had to sign contracts by the end of April and close by the end of June to be eligible for the tax break. Until recently, buyers had been slow to respond to the tax credit, which was extended and expanded last year, causing the housing recovery to stall.

While home sales started improving in March, they are not expected to match the gains witnessed with the initial tax credit. Still, analysts do not expect the housing market to slip back into the slump that helped to drive the broader economy into its worst downturn since the 1930s.

Economists and realtors are cautiously optimistic that the improving economy, particularly the return to job growth, will support sales beyond the credit.

Later in the second half of the year, and into 2011, home sales will likely become self-sustaining if the economy can add jobs at a respectable pace, and from a return of buyer demand as they see home values stabilizing, said Lawrence Yun, chief economist with the NAR.

The economy has grown for three straight quarters, driven mainly by the manufacturing sector as businesses rebuild inventories. Excluding transportation orders, factory orders surged 3.1 percent in March, the biggest gain in almost five years. Excluding defense, factory orders were up 1.3 percent.

Non-defense capital goods orders excluding aircraft, viewed as an indicator of business confidence, jumped 4.5 percent, the steepest increase since December 2007.

(Reporting by Lucia Mutikani and Mark Felsenthal; editing by Jeffrey Benkoe)