A gauge of planned U.S. business spending increased by the most in five months in October, but a fourth straight month of declines in shipments underscored the damage that fears of tighter fiscal policy next year are inflicting on the economy.

The Commerce Department said on Tuesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rebounded 1.7 percent last month after falling 0.4 percent the prior month.

Economists had expected a 0.5 percent decline.

Shipments of the so-called core capital goods orders, used to calculate equipment and software spending in the gross domestic product report, slipped 0.4 percent. It was the fourth consecutive of declines in shipments.

"Capital spending will remain a drag on the economy in the fourth quarter," said Andrew Grantham, an economist at CIBC World Markets in Toronto.

U.S. stock index futures were little changed on the data, while prices for U.S. debt slipped. The dollar pared gains against the euro, but rose against the yen.

Businesses are cutting back on capital spending, wary of automatic government spending cuts and tax increases, known as the fiscal cliff, that are scheduled to kick in early next year unless the U.S. Congress and the Obama administration can agree on a plan to cut the budget deficits.

The fiscal cliff could drain about $600 billion from an already fragile economy. Business spending is also being undermined by the long-running debt problems in Europe and slowing global demand, especially in China.

The Commerce Department said there was no indication that superstorm Sandy, which lashed the East Coast in late October, had an immediate impact on factories in that region.

Despite the headwinds, the manufacturing sector remains on a modest growth path after a strong run that helped to pull the economy out of the 2007-09 recession.

Durable goods orders were unchanged in October as gains in machinery, fabricated metal products, and computer and electronic products offset the drag from automobiles, defense and civilian aircraft.

Economists had forecast orders for durable goods, items from toasters to aircraft that are meant to last at least three years, falling 0.6 percent last month after rising 9.2 percent in September.

Excluding transportation, orders rose 1.5 percent after increasing 1.7 percent in September.

Last month, orders for transportation equipment fell 3.1 percent. Defense aircraft orders dropped 4.3 percent after surging 32.1 percent in September.

Orders for automobiles declined 1.6 percent after falling 1.9 percent the prior month. Civilian aircraft orders dived 5.8 percent last month after soaring in September.

While Boeing received nine aircraft orders more than in September, the planes ordered in October were less-expensive models, according to information posted on the plane maker's website.

(Editing by Andrea Ricci)