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WASHINGTON, Sept 26 (Reuters) - Weaker military demand pushed U.S. durable goods orders down in August, the government said on Thursday, but the drop was smaller than expected and a rise in capital goods orders offered a glimmer of hope a long-lasting business investment slump may be nearing an end.
Orders for durable goods -- costly manufactured items intended to last at least three years -- fell 0.6 percent last month after a downwardly revised 8.6 percent rise in July, the Commerce Department said. Economists polled by Reuters had expected durable goods orders to drop 2.6 percent.
"It doesn't suggest that you've got an economy getting ready to go into a significant softening here," said Tim O'Neill, chief economist at Bank of Montreal/Harris Bank.
While overall orders slipped, the department said orders would have risen 0.6 percent if defense orders were excluded, the fourth increase in the last five months for that category.
In addition, non-defense capital goods orders -- a gauge of capital spending -- rose 5.9 percent and 0.6 percent excluding volatile aircraft orders, building on increases in July.
The stronger-than-expected report, coupled with a separate report from the Labor Department showing that claims for jobless benefits dropped last week, pushed prices for U.S. Treasury securities down, while giving a boost to European stocks.
A falloff in business capital spending led the economy into recession last year, and officials at the Federal Reserve have said a pickup is vital to ensuring a solid, sustainable recovery.
Amid concerns over corporate profits and a great deal of uncertainty over the economy's path, businesses have shown a reluctance to step up capital spending.
While business investment continued its long slide in the second quarter, the speed of its retreat slowed, raising hope that a turnaround could be at hand, a hope bolstered by the August durable goods report.
"We're seeing signs even in this report, as modest as the number is, that capital spending, while it isn't going to be roaring back, at least we're moving up the hill, we're not sliding back," O'Neill said.
The report, however, was mixed by sector. Orders for primary metals rose 1.9 percent, electrical equipment demand gained 3 percent and the transportation equipment category rose 0.2 percent, with strength in civilian aircraft orders but weak demand for cars and military planes.
In contrast, orders for fabricated metal products dropped 3.5 percent, machinery was off 2.5 percent and computers were down 0.3 percent.
Unfilled orders rose 0.4 percent, the biggest gain since last October. In addition, inventories of manufactured durable goods dropped 0.2 percent, the 19th consecutive monthly decline. Both of those factors suggest production could pick up down the road.