Manufacturing grew at a slower rate in July as a drop in new orders spawned caution among factory managers, and U.S. private employers probably added jobs last month at their slowest rate in four years, according to two reports on Wednesday.

In the key housing sector, demand for mortgage applications slid last week to the weakest level in more than five months, an industry group said, suggesting the beleaguered U.S. housing sector has yet to hit bottom.

But in a bright sign for housing, pending sales of previously owned U.S. homes rose at their fastest pace in more than three years in June, a real estate trade group said.

Manufacturing is showing some signs of at least a temporarily slowing economy here, said Andrew Richman, a managing director at SunTrust's personal asset management division in West Palm Beach, Florida.

But the economic news was taking a back seat to investor concerns about the subprime mortgage market, Richman said.

If we saw home sales this strong without the subprime story going on, you would see bonds sell off, he said.

U.S. stock indexes swung wildly between positive and negative territory in Wednesday's session, with stocks falling on the data while the dollar was mixed. U.S. Treasury debt prices slipped on relative stability in global equities after Tuesday's rout.

The Institute for Supply Management said its index of national factory activity fell last month to 53.8, its lowest since March, and down from 56.0 in June.

Analysts had been looking for a more modest dip to 55.5, although any reading above 50 still points to expansion.

Consumer spending eased in the second quarter because of the housing sector's slump and rising gasoline costs. Analysts said factories could be responding to what might be perceived as a lack of demand.

ANEMIC JOB GROWTH

A report from ADP showed the private sector created 48,000 jobs in July, below a downwardly revised increase of 143,000 in June as the number of manufacturing jobs fell. Economists polled by Reuters had forecast a gain of 100,000 jobs for July.

ADP originally reported June's result at 150,000 new jobs.

The July number was ADP's lowest since July 2003, casting doubt on expectations for the government's July employment report on Friday.

Some economists lowered their forecasts for Friday's jobs data. Deutsche Bank cut its forecast for nonfarm payrolls to 90,000 from 150,000, and Action Economics LLC lowered its forecast to 125,000 from 135,000.

Economists polled by Reuters last week forecast an increase of 130,000 jobs, which includes government jobs.

However, Joel Prakken, chairman of Macroeconomic Advisers, which jointly developed the ADP report, said a forecast of 75,000 might be more appropriate for Friday's figures. Goldman Sachs also said ADP's report implies payroll growth of about 75,000.

A SURPRISE ON HOME SALES

The National Association of Realtors Pending Home Sales Index, based on contracts signed in June, rose 5 percent to 102.4 from a downwardly revised index of 97.5 in May.

It was the index's first increase since February, and surprised economists who forecast that pending home sales would decline by 0.6 percent, according to a Reuters poll.

Relatively warm weather in May and June may have helped, said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

But this is very hard to square with the extreme gloominess of home builders and the clear credit crunch in the mortgage market, he said.

Home builders' shares fell sharply on Wednesday as credit concerns mounted because of the widening effect of the crumbling U.S. housing market, and the stock of Beazer Homes USA Inc. dropped more than 40 percent before paring losses.

Lawrence Yun, the real estate association's senior economist, called the latest monthly reading encouraging, citing increases in all four major U.S. regions.

However, it is too early to say if home sales have already passed bottom, Yun said.

Still, major declines in home sales are likely to have occurred already and further declines, if any, are likely to be modest, given the accumulating pent-up demand, he added.

The Mortgage Bankers Association's seasonally adjusted mortgage applications index dipped 0.3 percent to 607.1 in the week ended July 27. The index sank for a third straight week, to a level just above this year's low of 606.6 in the February 16 week.

Applications to buy homes are unlikely to jump much any time soon, and loan approval could get even tougher, several analysts said.

Mounting subprime mortgage failures are compelling lenders to make it harder even for borrowers with better credit to get mortgages approved.

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