New orders for durable U.S. manufactured goods excluding transportation posted the largest gain in over two years in March while home sales hit an eight-month high, hinting at a pick-up in the pace of growth.

Analysts said Friday's robust data, coupled with other reports this month showing firming domestic demand, indicated the economic recovery, so far seen as moderate, was starting to take on a stronger tone.

This is an undeniably strong set of data. Looking at the underlying trend, what I see is strength, said Joseph Brusuelas, chief economist at Brusuelas Analytics in Stamford, Connecticut.

Orders for long-lasting goods excluding transportation items jumped 2.8 percent, the largest rise since December 2007, the Commerce Department said, after a 1.7 percent increase in February. Markets had expected a 0.7 percent rise in March.

Separately, the department said new home sales for March surged 26.9 percent, the largest advance since April 1963, to a 411,000 unit annual rate, breaking a four-month slide and handily beating market expectations for a 330,000-unit pace.

Wall Street stocks rose on a combination of the strong economic data and earnings from American Express, though gains were curbed by Greece's request for an emergency loan. The Dow Jones industrial average and the Standard & Poor's 500 index closed at 19-month highs.

U.S. Treasury debt prices fell, while the U.S. dollar touched a two-week high against the yen.

Recent data, including retail sales, indicate the recovery from the most painful downturn in 70 years is gaining steam.

A preliminary Reuters survey forecast the U.S. economy grew at a 3.4 percent annual rate in the first quarter after a 5.6 percent inventory-induced spurt in the last three months of 2009.

MANUFACTURING ON AN UPWARD TREND

The recovery is being led by the manufacturing sector, where activity is rising as businesses replenish stocks.

Although overall durable goods orders dropped 1.3 percent last month due to a plunge in the volatile category of civilian aircraft and parts, manufacturing remained on an upward trend. Overall orders rose 1.1 percent in February and markets had expected a 0.3 percent gain last month.

Details of the March report were robust, however, with a closely watched gauge of business spending rising for a second straight month.

Non-defense capital goods orders excluding aircraft surged 4 percent in March, building on the prior month's 2.1 percent increase. That beat market expectations for a 1.4 percent gain.

The capex (capital expenditure) recovery is running at full speed. The fact is companies seem confident that growth in final demand will be sustained, said Zach Pandl, U.S. economist at Nomura Securities International in New York.

Goods such as machinery, computers and communications equipment also had hefty increases in orders last month.

Durable goods inventories rose for a third straight month, while shipments -- which go into the calculation of gross domestic product -- increased after two months of declines. Unfilled orders fell after two straight months of gains.

HOUSING UPSWING

While the surge in sales of newly built single-family homes last month likely reflected a rush by consumers to take advantage of a homebuyer tax credit, it was a hopeful sign that recovery in the battered housing market was back on track.

Even more encouraging, figures for the four prior months were revised to add about 48,000 new sales, which analysts said suggested the underlying trend before March was much stronger than previously believed.

Apart from the tax credit, growing signs of a broadening economic recovery are lending housing some support, with homebuilder confidence rising this month.

We are likely to see sales decline in either April or May, a payback for the second homeowners' tax credit. Afterward, sales should improve because of job growth and inventory restocking, said Patrick Newport, a U.S. economist at Global Insight in Lexington Massachusetts.

The inventory of new homes on the market last month fell 2.1 percent to 228,000 units, the lowest since March 1971.

March's brisk sales pace left the supply of homes available for sale at 6.7 months' worth, the smallest since December 2006, from 8.6 months in February. The median sale price for a new home increased 4.3 percent in the 12 months through March.

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For graphics on U.S. durable goods orders, see http://link.reuters.com/buk29j and http://link.reuters.com/wek29j. For a graphic on home sales, see http://link.reuters.com/cym29j

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(Editing by James Dalgleish and Dan Grebler)

Retail sales American Express