WASHINGTON (REUTERS) - 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 on Tuesday 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 turned more pessimistic about short term prospects, causing consumer confidence to tumble.

The Commerce Department report said durable goods orders jumped 5.7 per cent last month as demand for transportation equipment rebounded strongly.

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

Excluding transportation, orders slipped 0.5 per cent after increasing 2.9 per cent in January.

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

However, the drop in these so-called core capital goods followed a 6.7 per cent 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 increased 1.9 per cent. 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 per cent 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 at a time when fiscal policy is tightening.

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

On a month-on-month basis it rose 1 per cent on a seasonally adjusted basis.

The improving tone for home prices was also underscored by a second report from the Commerce Department showing the median sales price for a new home increased 3 percent to US$246,800 (S$306,000) in February from January and was up 2.9 per cent from a year ago.

Though new home sales fell last month after hefty gains in January, they were up 12.3 per cent compared to February last year. Sales are being hampered by a lack of supply of homes on the market in some major parts of the country.

According to recent government data, groundbreaking for single-family homes intended for sale continues to lag sales.

Economists at Moody's' Analytics warn that builders could struggle to keep up with demand, which could cause the new home market recovery to be uneven over the next several months.

Though the durable goods report was mixed, it was generally in line with other data, including industrial production and the Institute for Supply Management's survey of national factory activity, that have shown a steady growth pace in manufacturing.

Factory activity has cooled in recent months after helping to lift the economy from the 2007-09 recession, restrained by sluggish domestic demand and slowing global growth.

The dollar pared gains against the yen and trimmed losses versus the euro after the data, while US Treasury debt prices held steady at lower levels. US stocks opened higher, but trimmed some of their gains after the consumer confidence data was released.

Last month, overall orders for durable goods were buoyed by a 21.7 per cent jump transportation equipment as demand for civilian aircraft surged 95.3 per cent.

Boeing received orders for 179 aircraft, up from only two in January, according to information posted on its website. They were boosted by American Airlines, which placed 143 orders, including 42 for the grounded 787 Dreamliners.

Motor vehicle orders increased 3.8 per cent. Defense aircraft orders rose 7.6 per cent.

There were also increases in orders for primary metals, computers and electronic products, electrical equipment and appliances. Orders for machinery and fabricated metal products fell.

Unfilled orders for long lasting manufactured goods rebounded last month.