New orders for long-lasting U.S. manufactured goods notched their biggest decline in five months in June, while applications for mortgages fell last week in a sign that economic conditions remain fragile.

The Commerce Department said on Wednesday durable goods orders fell 2.5 percent in June, the largest drop since January, after rising by a revised 1.3 percent in May.

This was worse than market expectations for a 0.6 percent decline. Orders, which had advanced for two straight months, were pulled lower by steep declines in demand for transportation and communications equipment.

U.S. stocks index futures deepened losses on the report, while Treasury debt prices held gains and U.S. dollar extended gains versus euro.

Durable goods doesn't look positive ... it's no turning point in terms of momentum, and markets have reacted neither positively or negatively, said Sebastien Galy, senior currency strategist at BNP Paribas in New York.

But there were bright spots in the mixed report. New orders excluding transportation rose 1.1 percent in June, the biggest rise since February, after climbing by 0.8 percent in May.

Excluding defense, orders slipped 0.7 percent in June, after two months of straight gains.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, rose 1.4 percent in June after increasing 4.3 percent the previous month.

The manufacturing sector benefits when we see non-defense ex-aircraft orders increase, said Gary Thayer, senior economist at Wells Fargo Advisors in St. Louis.

This is potentially a sign that the worst of the weakness in business spending is behind us and we could see modest improvement in capital spending in the second half of the year.

Separately, U.S. mortgage applications fell for the first time in four weeks, driven by a drop in demand for home refinancing loans as interest rates climbed, data from an industry group showed on Wednesday.

Applications for loans to buy a home, an early indicator of sales, were flat. Lack of interest for purchase loans does not bode well for the hard-hit U.S. housing market, which has otherwise been showing signs of stabilization.

(Reporting by Lucia Mutikani, Additional reporting by Julie Haviv, Ellen Freilich and Steven C. Johnson in New York; Editing by Andrea Ricci)

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