New orders for long-lasting U.S. manufactured goods fell in August and sales of new homes rose below expectations, government data showed on Friday, fanning fears that recovery from recession would be anemic.

The Commerce Department reports overshadowed a jump in consumer confidence this month to its highest since January last year and were the latest indication that growth could taper off once the government stimulus expired.

Durable goods orders tumbled 2.4 percent in August, the largest percentage decline since January, after rising 4.8 percent in July, the Commerce Department said. That was well below market expectations for a 0.5 percent rise in August.

In another report the department said sales of newly built single-family homes rose 0.7 percent in August for a fifth straight month to a 429,000 unit annual pace, the highest since September last year. However, the increase was below market forecasts for a 440,000 unit rate.

The trend is continuing to be positive, but not gigantically robust for growth because we don't have a lot of consumer spending going on, said Kurt Karl, head of economic research and consulting at Swiss Re in New York.

U.S. stocks fell on the data, handing all the three indexes their biggest weekly decline since early July <.N>. Long-dated government bond prices rallied on the news.

The durable goods and new home sales reports came on the heels of a survey showing a drop in purchases of used homes in August, and served as a reminder that recovery from the worst recession since the 1930s would be protracted and bumpy.

While the recovery is gaining momentum, there are a number of major speed bumps on the horizon, said Brian Bethune, chief U.S. financial economist at Global Insight in Lexington, Massachusetts.

These include the expiry of fiscal stimulus measures supporting the housing market in November and uncertainty about the potential impact of the Federal Reserve's 'exit strategy' availability of credit to critical areas such as auto and mortgage finance.

Federal Reserve Chairman Ben Bernanke said on Friday consumer and small business loans remained in great need of the U.S. central bank's support even as use of other financial backstop programs tapered off as markets regained balance.

In a communique issued at the end of a two-day meeting in Pittsburgh, leaders from the Group of 20 rich and developing countries agreed to avoid any premature withdrawal of stimulus, which they pledged to keep in place until sustainable recovery was in place.

AIRCRAFT HIT DURABLE GOODS

The drop in durable goods orders, a leading indicator of manufacturing activity, was largely caused by a decline in new orders for commercial aircraft -- likely reflecting a drop in orders received by Boeing .

Still, new durable goods orders excluding transportation were flat in August after rising for three straight months, the Commerce Department report showed. The market had expected a 1 percent gain after a 1.1 percent rise in July.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, unexpectedly fell 0.4 percent in August -- confounding market forecasts for a 1.3 percent rise. Core capital goods fell 1.3 percent in July.

The recovery road, as is glaringly evident today, is fraught with bumps and potholes. But we are still on that road, said Jennifer Lee, an economist at BMO Capital Markets in Toronto.

While household spending remains constrained by a weak labor market, consumers are starting to feel upbeat about the economy's prospects. Analysts hope this will translate to increased consumer demand down the road.

The Reuters/University of Michigan Surveys of Consumers' final index of sentiment for September rose to 73.5 -- the highest since January 2008 -- from 65.7 in August. This was above economists' expectations for a reading of 70.3.

Separately, total new homes sales fell 3.4 percent compared with August last year, Commerce Department data showed.

The median home sales price in August fell 11.7 percent from a year earlier to $195,200, the lowest since October 2003, the department said. In July, the median home price was $215,600.

The inventory of new homes available for sale at the end of August fell 3.0 percent to 262,000 units, a near 17-year trough. August's sales pace left the supply of new homes available for sale at 7.3 months, the lowest since January 2007, the department said.

(Additional reporting by John Parry in New York; Editing by Dan Grebler)

Ben Bernanke