U.S. durable goods orders rebound, shipments rising

- New orders for U.S. manufactured capital goods rebounded in October, driven by rising demand for machinery and a range of other equipment, the

latest indication of an acceleration in economic growth early in the fourth quarter.

The Commerce Department said on Wednesday that non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.4 percent after a slightly downwardly revised 1.4 percent decline in September.

These so-called core capital goods orders were previously reported to have dropped 1.3 percent in September. Last month's increase was in line with economists' expectations and suggested that manufacturing was slowly regaining its footing.

The report added to bullish reports on housing starts, home sales, retail sales and the labor market, as well as firming inflation in suggesting that the economy continued to gain speed early in the fourth quarter.

The Atlanta Federal Reserve is forecasting GDP rising at a 3.6 percent annual rate in the fourth quarter. The economy grew at a 2.9 percent pace in the July-September period.

The strong economic growth outlook, tightening labor market and rising inflation are likely to encourage the Federal Reserve to raise interest rates next month.

Business spending on equipment has bucked the acceleration in economic growth as the residual effects of a strong dollar and lower oil prices continue to curb profits of some companies.

Business spending on equipment has declined for four straight quarters, weighing heavily on manufacturing, which accounts for 12 percent of the U.S. economy.

With the dollar's rally appearing to have peaked early this year and oil and gas drilling activity rising in recent months, there is cautious optimism that equipment spending will rebound in the fourth quarter.

Capital investment is also expected to pick up as some of the uncertainty surrounding the Nov. 8 presidential election clears.

President-elect Donald Trump has pledged a massive infrastructure spending program, which could spur business investment on capital equipment.

That would boost companies like heavy machinery maker Caterpillar , which last month lowered its full-year revenue outlook for the second time this year.

Shipments of core capital goods rose 0.2 percent last month after an unrevised 0.4 percent gain in September. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.

A 12 percent surge in demand for transportation equipment buoyed overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, which jumped 4.8 percent last month.

That was the biggest rise since October 2015 and followed a 0.4 percent increase in September.

There were also increases in orders for fabricated metal products, electrical equipment, appliances and components, and computers and electronic products.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)