April 25 (Bloomberg) -- Orders for U.S. durable goods rose more than forecast in March, signaling business spending started to recover as the first quarter ended.

Orders for goods made to last several years increased 3.4 percent after a 2.4 percent gain in February that was larger than previously estimated, the Commerce Department said today in Washington. Orders excluding transportation equipment rose 1.5 percent after a 0.4 percent drop.

Demand at Boeing Co. aircraft jumped last month, while orders for machinery, metals and communications equipment rebounded. The report may reassure Federal Reserve policy makers, who've said declines in business investment pose a risk to forecasts of a pickup in growth.

``We're looking for capital spending to slowly return to more healthy growth by the second half of the year,'' Michael Feroli, an economist at JPMorgan Chase & Co. in New York, said before the report. ``Companies haven't been doing a whole lot of investing, and the normal wear and tear and need to order replacement equipment should keep orders going.''

Economists had forecast a 2.5 percent rise in March, according to the median of 75 estimates in a Bloomberg News survey, after a previously reported 1.7 percent gain in February. Estimates ranged from gains of 0.5 percent to 6.4 percent.

Excluding transportation equipment, orders were forecast to rise 1.1 percent. Economists prefer to track the durable-goods figure excluding transportation because orders for aircraft and automobiles tend to be volatile from month to month, obscuring underlying trends in business investment.

Boeing

Aircraft orders rose 38 percent in March after surging 102 percent a month earlier, today's report showed. Boeing Co. received 119 aircraft orders in March, more than double the 57 the Chicago-based company had in February, according to its Web site.

Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, jumped 4.7 percent, the most since September 2004. Shipments of those items, used in calculating gross domestic product, rose 0.7 percent after being unchanged in February. Unfilled orders for such goods rose 1.6 percent last month.

Orders rose in all categories except computers and defense. Demand for machinery increased 4.2 percent and orders for communications equipment jumped 12 percent. A 2.5 percent increase in bookings for primary metals was the biggest since May 2006.

Orders outside of military equipment rose 4.5 percent last month. Inventories of all durable goods increased 0.3 percent.

Computers, Defense

Orders for computers and related products dropped 4.2 percent and defense bookings fell 22 percent.

Reluctance among businesses to step up spending had raised concern among economists that the economy would falter should consumer spending slow as well. Reports yesterday showed a decline in consumer confidence this month and a drop in existing- home sales in March.

Business investment ``could pose noticeable downside risks'' for the economy in the near term, Fed Governor Frederic Mishkin said in a speech April 20. Spending on equipment and software in the fourth quarter fell by the most since the final three months of 2002.

Economists this month trimmed their forecasts for 2007 growth in total business investment to 3.2 percent from the 4.3 percent estimated in March, according to a survey by Blue Chip Economic Indicators. Investment grew 7.2 percent last year.

The spending slowdown may reach beyond the housing and auto industries, said John C. Williams, senior vice president and adviser at the Fed Bank of San Francisco. Williams, writing in an April 12 letter posted on the bank's Web site, said slow spending may suggest ``a more widespread deterioration in the perceived profitability of capital investment.''

`Favorable' Conditions

Still, Williams said ``very favorable financial conditions'' and probable recoveries in housing and auto demand suggest investment may regain traction.

Growing corporate profits, combined with less excess inventory and increasing demand from abroad, may also encourage companies to spend more in coming months, economists said.

``Recent indications of good earnings performance in the first quarter should ease some of the CEO jitters that have put a heavy damper on business investment in the past several months,'' Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts, said in a note to clients.

Chief executive officers turned optimistic about the state of the U.S. economy last quarter for the first time in a year, according to a survey this month from the Conference Board. The report, based on a survey of about 100 business leaders in various industries, showed fewer think the economy will worsen, signaling growth may have reached a trough last quarter.

Chrysler Group committed to $1.8 billion in new and expanded factories in Michigan because it can't wait for DaimlerChrysler AG to decide on the U.S. unit's future, Chief Executive Officer Tom LaSorda said April 18. The automaker acted to remain competitive, LaSorda said.

To contact the report on this story: Joe Richter in Washington at Jrichter1@bloomberg.net

Last Updated: April 25, 2007 08:30 EDT