U.S. businesses shrugged off an uncertain economic environment and stepped up orders for capital goods in August, a sign the economy was not falling back into recession.

The Commerce Department said on Wednesday that non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, increased 1.1 percent after falling 0.2 percent in July.

That was well above economists' expectations for a 0.3 percent rise and suggested that businesses, sitting on about $2 trillion in cash, had not responded to the recent financial market volatility by curtailing investment.

If we were in a recession we would expect to see business orders for capital goods plummeting and they are not, said Richard DeKaser, an economist at Parthenon Group in Boston.

The solid rise in investment spending, which was accompanied by a 2.8 percent rise in shipments of capital goods, prompted some economists to raise forecasts for third-quarter economic growth.

JPMorgan lifted its GDP growth forecast to an annual rate of 1.5 percent from 1.0 percent, while forecasting firm Macroeconomic Advisers raised their projection to 2.1 percent from 1.7 percent.

Shipments of civilian capital goods orders excluding aircraft go into the calculation of GDP.

While we don't yet know the split between how much went to domestic versus foreign buyers, this almost certainly implies another solid quarter for capital equipment spending, said Michael Feroli, an economist at JPMorgan in New York.

The data helped lift stocks on Wall Street, with the Dow Jones industrial average briefly rising 1 percent. Prices for Treasury debt fell, while the dollar rose broadly.

Extreme volatility in financial markets, as politicians in Washington fought over budget policy and Europe struggled to come to grips with its debt crisis, had knocked confidence and raised the risk of a new U.S. recession.

While businesses are investing in machinery, they have been cautious on hiring. Nonfarm employment failed to grow in September for the first time in a year.

Poisonous political dialogue and the attacks on business led people to be predictably very cautious, not investing, not wanting to hire, said Blackstone Group chief Stephen Schwarzman at the Lincoln Center Dialogue breakfast series. The general uncertainty has basically frozen the economy.

MANUFACTURING RESILIENT

While business spending plans point to continued growth, the report also confirmed a slowing trend in manufacturing.

Overall orders for durable goods -- items ranging from toasters to aircraft meant to last three years or more -- dipped 0.1 percent after a 4.1 percent jump in July.

Orders were held back by an 8.5 percent drop in bookings for motor vehicles -- the largest decline since February last year. Economists, however, blamed the fall on the seasonal adjustment to account for the rollout of new models, which normally happens in August.

The drop in orders, which are quite volatile from month to month, came despite a 23.5 percent rise in orders for civilian aircraft.

Boeing received 127 orders for aircraft, according to the plane maker's web site, up from 115 in July, with Delta Airlines placing an order for 100 planes.

Excluding transportation, orders also slipped 0.1 percent after rising 0.7 percent in July.

But outside of transportation and primary metals, which fell 0.8 percent, details of the report were relatively strong.

Orders for machinery edged up 0.1 percent, while computers and electronic products rose 1.3 percent. Demand for capital goods increased 4.2 percent and electrical equipment and appliances rose 1.3 percent.

We think large companies are so cash-rich that they can keep spending despite lower confidence, said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

Unfilled orders rose 0.9 percent after increasing by the same margin in July, indicating factories will keep busy for a while.

Inventories advanced 0.9 percent to a record high of $365.3 billion, which should also support third-quarter gross domestic product growth but at the expense of growth in the final three months of the year.

(Editing by Neil Stempleman)

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