Factory Orders Surge for 2nd Straight Month : Economy: Analysts downplay inflation threat. But concern over rates leads to stock selloff.

Factory demand for large durable goods surged in September for the second straight month. But analysts, noting that most of the gains were concentrated in volatile aircraft orders, said there is little reason to expect an inflationary boom.

Nonetheless, concern that the report could lessen the chances of a Federal Reserve Board easing of interest rates contributed to a selloff in stocks, with the Dow Jones industrial average losing 49.86 points.

The Commerce Department reported Thursday that orders for items expected to last at least three years rose 3% in September--on top of an upwardly revised 5.1% leap in August, the biggest jump in a year.

But most evidence suggests the economy is expanding only moderately, analysts said. The government will announce today gross domestic product for the third quarter; GDP is the most comprehensive measure of economic growth.

The economy expanded at an anemic annual rate of 1.3% in the second quarter, but signs point to more rapid growth since then.

The durable goods report “does not show the economy is picking up speed that can be an inflationary threat,” said economist Stuart Hoffman of PNC Bank Corp. “The economy is not too hot and it’s not too cold.”

“The economy still has momentum leaving the third quarter,” said Commerce Undersecretary Everett Ehrlich. “The ‘soft landing’ is at hand. The question is what will be the trajectory of the takeoff afterward.”

In another report, the Labor Department said the number of American workers filing first-time claims for jobless benefits was unchanged last week, the first time it has not risen in a month. New applications for unemployment insurance were a seasonally adjusted 359,000, a total analysts say is consistent with sluggish job growth.

The surprisingly strong durable goods report briefly raised inflation fears on Wall Street. But the bond market quickly recovered, as the key 30-year Treasury bond steadied with a yield of about 6.32%.

Orders totaled a seasonally adjusted $169 billion in September, up from $164.1 billion a month earlier.

Due mainly to aircraft demand, transportation equipment jumped 10.8% last month. Analysts said the aircraft orders can take years to fill, postponing their real impact on the economy.

Orders for computers, communications equipment and industrial machinery also rose, but not nearly as rapidly. Excluding transportation, durable goods orders were up just 0.6% last month.

Still, orders for non-defense capital goods excluding aircraft soared 7.1% in September, the second straight gain after plummeting 8.1% in July.

Orders for defense equipment climbed 0.7% last month after shooting up 40.3% in August. Excluding military goods, orders rose 3.1% on top of a 3.9% advance in August.

Unfilled orders rose 0.7% last month to $427.3 billion, the biggest increase in eight months. The orders backlog helps measure whether current facilities and manpower are able to keep up with demand, with increases suggesting larger production lines and more jobs.

Shipments in September rose 1% to $165.9 billion on top of a 5.3% jump a month earlier. It was the fourth increase in the past five months.