* U.S. new home sales rise faster in July
* New orders for U.S.-made durable goods surge on aircraft
* Mortgage applications up for second straight week (Recasts with new home sales, updates markets)
By Lucia Mutikani
WASHINGTON, Aug 26 (Reuters) - Sales of newly built U.S. single-family homes rose in July to their fastest pace in 10 months, while orders for long-lasting manufactured goods surged, hinting a modest economic recovery was taking shape.
The Commerce Department on Wednesday said new home sales rose 9.6 percent to a 433,000 annual pace, the highest rate since September, from 395,000 in June. That was the biggest percentage gain since a matching increase in February 2005.
In another report, the department said a surge in the demand for aircraft pushed durable goods orders up 4.9 percent in July, the largest advance since July 2007, after falling 1.3 percent in June.
The reports offered fresh evidence that the worst recession since the Great Depression of the 1930s has probably ended or is close to ending, though recovery will be hobbled by sluggish consumer demand owing to high unemployment.
"Obviously things are getting better and the big question now becomes, is it a 'V' recovery or a 'W' recovery? We have a ways to go with employment and until those get better, we still have a ways to go," said Warren Simpson, managing director at Stephens Capital Management in Little Rock, Arkansas.
U.S. stock indexes recouped losses after the housing data, while government bond prices fell.
The median home sales price in July fell 11.5 percent to $210,100 from a year earlier, the department said. Compared to June, the median price slipped 0.1 percent.
The inventory of homes available for sale in July fell 3.2 percent to 271,000 units, the lowest since March 1993, the department said. July's sales pace left the supply of homes available for sale at 7.5 months' worth, the lowest since April 2007.
MODEST RECOVERY
Housing data continue to hint at a modest recovery starting to take shape from a three-year slump. However, there are fears the recovery could falter if the government's tax credit of up to $8,000 for first-time home buyers is not extended when it expires at the end of November.
Separately, a surge in civilian aircraft orders at Boeing
New orders for transportation equipment jumped 18.4 percent, the biggest increase since September 2006, while capital goods orders rose 9.5 percent in July --- the largest gain since December 2007.
Still, new orders excluding transportation climbed 0.8 percent in July for first successive three-month advance since the first quarter of 2006.
Even more encouraging for the economy, which slipped into recession in December 2007, shipments increased 2 percent after rising 0.7 percent in June.
While, analysts reckon the worst slump in 70 years has probably ended or is close to ending, weak consumer spending remains a threat.
A second reading of second-quarter gross domestic product estimates due on Thursday could shed more light on the health of the U.S. consumer
"The vast majority of GDP is personal consumption and that has been the one that has been down now for five months in a row and people are worried about. So while this (durable goods report) is positive news, the important news is yet to come," said Peter Jankovskis, co-chief investment officer at Oakbrook Investments in Lisle, Illinois.
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, slipped 0.3 percent in July, the Commerce Department said. The prior month was revised to show a 3.6 percent rise, previously reported as a 2.6 percent increase.
Durable goods orders are a leading indicator of activity in manufacturing, which in turn provides a good barometer for overall business health.
Durable goods inventories fell 0.8 percent in July, after declining 1.5 percent the prior month.
U.S. mortgage applications rose for a second straight week, with demand for home refinancing loans rising to its highest level since early June, data from an industry group showed on Wednesday.
Applications for loans to buy a home, an early indicator of sales, rose slightly last week, but nevertheless gained for a fourth consecutive week. The trend bodes well for the hard-hit U.S. housing market, which has been showing signs of stabilization. (Reporting by Lucia Mutikani; Editing by Neil Stempleman)