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U.S. factory orders post largest increase in nearly 1-1/2 years

WASHINGTON, Feb 4 (Reuters) - New orders for U.S.-made goods increased by the most in nearly 1-1/2 years in December amid strong demand for defense aircraft, but weak business spending on equipment pointed to limited scope for a sharp rebound in manufacturing even as business confidence is improving.

Factory goods orders surged 1.8%, the largest gain since August 2018, the Commerce Department said on Tuesday. Data for November was revised down to show orders tumbling 1.2% instead of dropping 0.7% as previously reported. Economists polled by Reuters had forecast factory orders would increase 1.2% in December.

Factory orders fell 0.6% in 2019. Shipments of manufactured goods rose 0.5% in December after gaining 0.3% in November.

Easing trade tensions between the United States and China have led to a pickup in business sentiment. A survey on Monday from the Institute for Supply Management showed its measure of national factory activity rebounded in January after contracting for five straight months.

But risks continue to loom over manufacturing, which accounts for 11% of the U.S. economy. While Washington and Beijing signed a Phase 1 trade deal last month, U.S. tariffs on $360 billion of Chinese imports, about two-thirds of the total, remain.

Boeing last month suspended production of its troubled 737 MAX jetliner, which was grounded last March following two fatal crashes. The coronavirus, which has killed hundreds of people in China and infected thousands globally, could disrupt supply chains, especially for electronics producers.

Transportation equipment orders surged 7.9% in December, the biggest increase since August 2018, after plunging 8.2% in the prior month. Orders were boosted by a 168.3% jump in demand for defense aircraft and parts, which offset a 74.7% tumble in orders for civilian aircraft and parts. Motor vehicle and parts orders increased 0.5% in December.

But machinery orders fell 1.0% in December after dropping 1.2% in November. Orders for electrical equipment, appliances and components orders decreased 0.3% in December.

The government also said orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment, dropped 0.8% in December instead of deceasing 0.9% as reported last month.

Shipments of core capital goods, which are used to calculate business equipment spending in the gross domestic product report, declined 0.3% in December, rather than falling 0.4% as previously reported. (Reporting by Lucia Mutikani Editing by Paul Simao)