DEMAND for long-lasting US manufactured goods surged in February, suggesting factory activity continued to expand at a moderate pace, even though a gauge of planned business spending slipped.

Other data yesterday indicated the housing market was getting positioned to take the baton from manufacturing, with single-family home prices posting their biggest year-on-year gain in January in six-and-a-half years.

But the economic picture was soured a bit by a report showing Americans in March were more pessimistic about short-term prospects, causing consumer confidence to tumble.

The Commerce Department report said durable goods orders jumped 5.7 percent last month as demand for transport equipment rebounded strongly.

The rise in durable goods orders, which range from toasters to aircraft, reversed January's 3.8 percent plunge and beat economists' expectations for a 3.8 percent advance.

Excluding transport, orders slipped 0.5 percent after increasing 2.9 percent in January.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 2.7 percent, the largest decline since July.

However, the drop in these so-called core capital goods followed a 6.7 percent jump in January and economists were unworried.

"To the extent that the weakness in core capital goods orders was a partial retracement of the unsustainable big gains the month before, the constructive tone in business investment over the past few months remains largely intact," said Millan Mulraine, a senior economist at TD Securities in New York.

Taking the sting from the fall in core capital goods orders, shipments rose 1.9 percent. Shipments of those goods are used to calculate equipment and software spending in the gross domestic product report.

Last month's rise, which unwound a 0.7 percent fall in January, suggested business spending would again contribute to growth this quarter.

A sustained recovery in the housing market is also helping to support the economy when fiscal policy is tightening.

The S&P/Case Shiller composite index of 20 metropolitan areas rose 8.1 percent in January compared to last year, its biggest rise since June 2006, a separate report showed.