WASHINGTON (Oct 25): New orders for key US-manufactured capital goods increased more than expected in September, but business spending on equipment likely slowed in the third quarter.

Non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 0.5% last month after an unrevised 0.3% gain in August, the Commerce Department's Census Bureau said on Friday.

Economists polled by Reuters had forecast these so-called core capital goods orders edging up 0.1% after a previously reported 0.3% rise in August. Core capital goods shipments fell 0.3% after dipping 0.1% in the prior month.

Higher borrowing costs have been a constraint on business investment, though a loosening of financial conditions as the Federal Reserve prepared to cut interest rates boosted spending on equipment in the second quarter.

Non-defence capital goods orders dropped 4.5% after declining 4.4% in August. Shipments of these goods dropped 3.6% after falling 2.0% in the prior month.

These shipments go into the calculation of the business spending on equipment component in the gross domestic product report. Business investment in equipment rose at a brisk 9.8% annualised rate in the second quarter, contributing to the economy's 3.0% growth pace.

Growth estimates for the July-September quarter are currently as high as a 3.4% rate. The government will publish its advance estimate of third-quarter GDP next week.

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