Orders placed with U.S. manufacturers increased 2.1% in July, a substantially more rapid pace than June's 0.8% rise.

The July increase was led by demand for durable goods, such as computers, industrial machinery, and defense hardware, Commerce Department statistics showed.

Factory orders rose to a seasonally adjusted $358.466 billion in July. The increase reflected the largest gain in durable goods orders in more than a year and a half, while demand for nondurable goods was almost flat.

The report "suggests that export demand is picking up," said Paul Kasriel, an economist at Northern Trust Securities in Chicago. "The Asian crisis is pretty much in the past in terms of its impact on U.S. manufacturers."

Orders for durable goods rose 3.6% in July, the largest gain since a 4.4% increase in November 1997. July orders for nondurable goods increased 0.1%.

Excluding military weapons and other defense orders, factory orders increased 1.7%.

Factory inventories, meantime, rose 0.5% in July, after falling 0.2% in June and rising 0.1% in May.

Also, unfilled orders rose 0.4%, the first increase since March and the largest gain since January, while shipments increased 0.5%. The inventory-to-shipments ratio stayed at a record low 1.3 months, suggesting factories will need to step up production to meet demand.

"Faster inventory accumulation is going to be an important source of gross domestic product growth during the second half of the year," Mr. Kasriel said.

Analysts expected overall orders to rise 1.8% in July after the initial June estimate of a 0.7% gain.

Some manufacturers are optimistic about growth this year. "Incoming business remained generally strong throughout the quarter, resulting in a 13% increase in the order backlog," said Johnie Schulte Jr., chief executive officer of Houston-based NCI Building Systems Inc.

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