By Lucia Mutikani

WASHINGTON (Reuters) - New orders for U.S. manufactured capital goods rose less than expected in June amid weak demand for machinery, suggesting an ongoing downturn in business spending.

Business investment remains soft despite data ranging from retail sales to housing suggesting that U.S. economic growth has regained speed after growth almost stalled early in the year.

The Commerce Department said on Wednesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.2 percent last month after decreasing 0.5 percent in May.

"Up is nice, but there doesn't seem to be a major drive on the part of the companies to invest heavily," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Weak business spending was acknowledged by the Federal Reserve on Wednesday, as the U.S. central bank kept interest rates unchanged because concerns over inflation, even though it described the near-term risks to the economic outlook as having "diminished."

Economists polled by Reuters had forecast the so-called core capital goods orders rising 0.3 percent last month.

Prices for U.S. government bonds rose on the data and the Fed's interest rate decision, while the U.S. dollar was little changed against a basket of currencies. U.S. stocks were trading marginally lower later afternoon.

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, tumbled 4.0 percent last month, the biggest drop since August 2014, after declining 2.8 percent in May.


Business spending has weakened since late 2015, in part as lower oil prices squeezed profits in the energy sector, forcing companies to cut capital spending budgets.

Uncertainty over global demand and the upcoming U.S. presidential election are also making companies cautious about spending, economists said.

Prospects for a pick-up in business spending are less encouraging against the backdrop of lackluster corporate profits.

"The bad news is not over. Everything conspiring against the durables sector in 2015 will remain working against it for at least the balance of 2016," said Michael Montgomery, a U.S. economist at IHS Global Insight in Lexington, Massachusetts.

"The hope for 2017 is that the adjustment processes start to wind down and produce less drag and token recovery, but that feels like a vampire drinking your blood slower."

Shipments of core capital goods, which are used to calculate equipment spending in the government's gross domestic product measurement, fell 0.4 percent last month after sliding 0.5 percent in May, suggesting business spending probably fell again in the second quarter.

Should spending on equipment drop in the second quarter U.S. GDP data due on Friday, that would be the first time since the 2007-2009 recession that outlays would have contracted for three straight quarters.

According to a Reuters survey of economists, the government will likely report on Friday that GDP increased at a 2.6 percent annual rate in the second quarter after rising at a 1.1 percent pace in the January-March period.

In June, orders for electrical equipment, appliances and components increased 0.8 percent, but orders for machinery dipped 0.1 percent and primary metals dropped 1.3 percent. Computers and electronic products orders declined 2.2 percent, the biggest fall since April 2015.

Orders for transportation equipment slumped 10.5 percent, the largest drop since August 2014, as bookings for aircraft plunged 58.8 percent. Orders for automobiles rose 2.6 percent.

Pointing to sustained weakness in business spending, unfilled core capital goods orders fell 0.2 percent in June after slipping 0.4 percent in May.

A separate report from the National Association of Realtors showed contracts to purchase previously owned homes rose 0.2 percent in June after declining 3.7 percent in May.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)