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Factory orders inch up

But stocks drop a bit because .3% gain is short of forecast

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WASHINGTON — America's factories saw orders bounce back a bit in February, a sign that manufacturing is continuing to emerge from a three-year slump.

The Commerce Department reported Wednesday that orders placed with factories increased by a modest 0.3 percent last month, compared with a drop of 0.9 percent in January.

Although February's rebound wasn't as strong as the 1.5 percent increase economists were forecasting, it was still encouraging that factory orders managed to recover some ground last month.

"The manufacturing recovery is continuing, and it is moderate," said Clifford Waldman, economist at Manufacturers Alliance/MAPI, a research group. "Business investment, however, seems to be slowing, but we expected that because it shot out of the cannon in the second half of last year."

On Wall Street, though, the factory orders report helped pull stocks lower. The Dow Jones industrials closed down 24 points at 10,357.70, while the Nasdaq composite index declined 6.41 to 1,994.22. The S&P 500 lost 0.79 to finish at 1,126.21.

Demand for "durable" goods — costly manufactured products, including automobiles, household appliances and computers — rose by 2.5 percent in February. That was an improvement from the 2.6 percent decline registered in January and marked the biggest increase since October.

But "nondurable" goods, such as food and clothing, fell by 2 percent in February, compared with a 1.2 percent increase in January. The weakness in nondurables in February was broad-based, restraining overall factory orders for the month.

Even though a number of other economic reports show manufacturing improving, many plants continue to operate below capacity and jobs continue to evaporate. Manufacturers in February cut jobs for the 43rd month in a row.

Hardest hit by the 2001 recession, manufacturers over the past three years have had to cope with difficult economic times at home and abroad as well as compete against a flood of imports flowing in the United States.

Job losses, trade and overall economic conditions are prominent issues in the presidential campaign.

President Bush, who says he understands Americans' concerns about the loss of U.S. jobs to other countries, has defended his free-trade policies against Democratic attacks and warned against economic isolationism. Bush says making his tax cuts permanent will strengthen the economy and spur job growth.

But presumptive Democratic presidential nominee John Kerry says swelling U.S. trade deficits and job losses are evidence that Bush's economic and trade policies aren't working.

Federal Reserve policymakers, meanwhile, have been keeping a key short-term interest rate at an extra-low level of 1 percent to assist the economic recovery. By holding rates low, businesses and consumers may be motivated to boost investment and spending, forces that would expand economic growth.

Economists believe the economy is growing at a healthy annual rate of 4.5 percent in the current January-to-March quarter. Some economists hope that companies, which have seen profits improve, will hire more workers in the coming months. A sustained turnaround in the currently sluggish jobs market is the one missing chapter in the economic recovery story, economists say.