(Updates with markets in sixth paragraph, construction spending in seventh.)

May 2 (Bloomberg) -- U.S. manufacturing cooled in April to a pace that’s consistent with steady growth in the industry that’s leading the expansion.

The Institute for Supply Management’s manufacturing index fell to 60.4 last month from 61.2 in March, the Tempe, Arizona- based group said today. Figures greater than 50 signal expansion, and the April reading exceeded the 59.5 median forecast in a Bloomberg News survey.

Caterpillar Inc. and Cummins Inc. are among manufacturers profiting from growing emerging economies such as China, as well as increased capital investment in the U.S. Federal Reserve policy makers last week said the expansion was “proceeding at a moderate pace,” buoyed by stronger business spending.

“I would expect manufacturing to continue to outperform other parts of the economy,” Paul Dales, a senior U.S. economist at Capital Economics Ltd. in Toronto, said before the report. “It’s still benefiting from strength in demand in other areas, particularly Asia.”

Estimates in the Bloomberg survey of 78 economists ranged from 57.5 to 62.

Stocks maintained gains after the figures, with the Standard & Poor’s 500 Index increasing 0.4 percent to 1,369.66 at 10:26 a.m. in New York. Treasuries were little changed, with the yield on the benchmark 10-year note at 3.29 percent.

Construction Spending

Construction spending in the U.S. climbed more than forecast, a report from the Commerce Department showed. The 1.4 percent increase was the biggest since April 2010 and followed a revised 2.4 decrease in February that was larger than previously estimated. The median estimate of economists projected a 0.4 percent March rise.

European manufacturing growth accelerated more than forecast in April, driven by higher production in Germany and France, a separate report showed. A gauge of manufacturing in the 17-nation euro area rose to 58 from 57.5 in March, London- based Markit Economics said in an e-mailed report today. That’s above an initial estimate of 57.7 on April 19.

The ISM’s production index decreased to 63.8 from 69, which was the highest since January 2004. The new orders measure fell to 61.7 from 63.3, and the gauge of export orders increased to 62 from 56.

The employment gauge eased to 62.7 from 63 in the prior month.

The index of prices paid rose to 85.5 from 85. A measure of supplier deliveries decreased to 60.2 from 63.1.

Order Backlogs Jump

The measure of orders waiting to be filled jumped to 61, matching an almost six-year high reached in February 2010, from 52.5. The inventory index rose to 53.6 from 47.4, while a gauge of customer stockpiles rose to 40.5 from 39.5. A figure lower than 50 means manufacturers are reducing stockpiles.

Caterpillar, the world’s largest maker of construction equipment, posted first-quarter profit that topped analysts’ estimates and raised its full-year earnings forecast as sales surged in China, India and Brazil and other developing countries.

“We expect that the pace of world economic growth will support continued recovery in the key industries we serve,” Doug Oberhelman, chief executive officer at Caterpillar, said in a statement last week.

While the 2011 outlook has improved, the increase would have been greater if not for the impact of the disaster in Japan, Caterpillar said.

Auto Production

Toyota Motor Corp., the world’s largest automaker, on April 20 extended production cuts at its North American plants for more than a month because of limited parts availability after Japan’s March 11 earthquake and tsunami.

The company’s North American unit, which canceled five days of production from April 15 through April 25, said plants in the region will continue to be closed on Mondays and Fridays and run at 50 percent on Tuesdays, Wednesdays and Thursdays through June 3. Toyota will also shut U.S. plants for one week starting May 30, it said.

Demand from countries like China and Brazil is spurring U.S. exports of machinery and consumer goods. Sales overseas reached the highest level on record in January before falling in February for the first time in six months, according to Commerce Department figures.

Columbus, Indiana-based Cummins, a maker of diesel engines, more than doubled its first-quarter income from a year earlier and boosted its forecasts for sales and profit this year.

Global Demand

“Our first-quarter results reflect continued strong growth in key international markets, especially China, India and Brazil,” Chief Executive Officer Tim Solso said in a conference call last week. “We are seeing significant growth in demand for our products and services in nearly every geographic market we serve.”

The business spending that helped lead the economy out of recession is being helped this year in part by President Barack Obama’s compromise at the end of last year with congressional Republicans on taxes. Companies can depreciate 100 percent of investments in capital equipment in 2011.

“Household spending and business investment in equipment and software continue to expand,” Fed policy makers said last week after their policy meeting.

--Editor: Vince Golle

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net