Factory Orders See Biggest Gain in Eight Months

New orders for U.S. factory goods recorded their biggest increase in eight months in March, boosted by demand for transportation equipment, but the underlying trend remained weak against the backdrop of a strong dollar.

The report on Monday from the Commerce Department was the latest indication that while economic growth is regaining some momentum after abruptly slowing down in the first quarter, the rebound would not be as strong as experienced during the same period last year when output was chilled by cold weather.

New orders for manufactured goods increased 2.1 percent, the largest gain since July last year, after a revised 0.1 percent dip in February. It was the first rise since last August.

Economists had forecast orders rising 2.0 percent in March after a previously reported 0.2 percent gain in February. Orders excluding transportation were flat in March after edging up 0.1 percent in February.

U.S. financial markets were little moved by the data.

Manufacturing, which accounts for about 12 percent of the U.S. economy, has been hit by the strong dollar and lower crude oil prices, which are putting a squeeze on the profits of multinational corporations and oil firms.

That together with harsh weather and a now-settled labor dispute at the West Coast ports helped to hold the economy down to a 0.2 percent annual growth pace in the first quarter.

Data on auto sales, housing and employment all suggest the economy is regaining some speed, but probably not fast enough to encourage the Federal Reserve to start raising interest rates next month, as most economists had anticipated at the beginning of the year.

The dollar has gained 12 percent against the currencies of the United States' main trading partners since June on expectations of tighter monetary policy and economists estimate it could shave 0.6 percentage point off growth this year.

Companies like Schlumberger <SLB.N>, the world's No.1 oil-field services provider, and Halliburton <HAL.N> have slashed their capital expenditure for this year citing lower oil prices.

Multinational corporations, including Procter & Gamble Co <PG.N>, the world's largest household products maker, Colgate-Palmolive <CL.N> and Whirlpool Corp <WHR.N>, the world's largest maker of home appliances, have lowered their profit forecasts for the year because of the dollar.

The Commerce Department also said orders for non-defense capital goods excluding aircraft - seen as a measure of business confidence and spending plans – edged up 0.1 percent instead of the 0.5 percent drop reported last month.

Shipments of non-defense capital goods orders excluding aircraft, used to calculate business equipment spending in the gross domestic product report, declined 0.4 percent as previously reported.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)