Tuesday's reports added to robust employment and other manufacturing data in suggesting the economy has rebounded smartly from the first-quarter's weather-induced slump.

"This is consistent with other data showing growth bouncing back in the second quarter. Everything looks set for solid growth in the second half of this year," said Gus Faucher, senior economist at PNC Financial Services Group.

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Factory orders increased 0.7 percent after an upwardly revised 1.5 percent advance in March, the Commerce Department said. March's orders had previously been reported as having risen 0.9 percent.

Excluding the volatile transportation category, orders rose 0.5 percent, the third straight monthly gain.

Surprisingly strong U.S. sales from automakers in May bolstered the upbeat view on the factory sector and suggested manufacturing was poised for further growth.

Sales from General Motors Co., Ford Motor Co. and Chrysler Group beat analysts' expectations, as did Toyota Motor Corp. and Nissan Motor Co.

GM and Chrysler had their best May in seven years, while Nissan set a sales record for the month.

"These are stunning numbers," said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.

Sales could approach the highs reached in the 2005-2006 period, when the annual pace exceeded 17.0 million units, Karydakis said. He said he expected sales to settle at a pace above 16.5 million units.

"We would view this as a strong sign of a consumer sector emerging more confident with pivotal positive implications for spending and growth later in the year," he added.

INVENTORY BOOST

The economy should also get a lift as businesses rebuild inventories after hunkering down in the first quarter to work through piles of stocks accumulated late last year.

Factory inventories rose 0.4 percent in April.

The increase prompted Barclays to raise its estimate of second-quarter growth by a tenth of a percentage point to a 2.9 percent annual rate. Forecasting firm Macroeconomic Advisers lifted its forecast to 3.9 percent from 3.8 percent. The economy had contracted at a 1.0 percent rate in the first quarter.

Unfilled orders recorded their largest gain since November, indicating factories will be busy in the months ahead, and shipments rose for a third consecutive month.

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