WASHINGTON (Reuters) - New orders for long-lasting U.S.-made goods rose in February for the first time in seven months and new home sales rebounded, government data showed on Wednesday, suggesting the economic downturn might be easing a bit. Sales of newly built U.S. single-family homes rose at their fastest pace in 10 months in February, it said in another report.

"The sky is no longer falling, we seem to have hit rock bottom. The data suggest that the weakest month of the recession possibly was January and now things will probably stabilize at this lower level," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

U.S. stocks rallied on the data, with the Dow Jones industrial average ending 89.84 points higher at 7,749.81 and the S&P 500 closing up 7.76 at 813.88.

The upbeat economic reports and tepid demand in a record-large auction of five-year U.S. Treasury notes sent benchmark government bond yields, which move inversely to prices, rising to their highest in a week.

Recent data, including retail sales and housing, have pointed to some signs of a moderation in the pace of the 15 month housing-led recession.

In a separate report the Commerce Department said sales of newly built U.S. homes rose 4.7 percent to a 337,000 annual pace, the fastest increase since last April, from 322,000 in January.

"This completes a trifecta of positive housing reports for February. A sustained increase in housing demand would be the best tonic for the credit crisis and a major sign that the worst of the recession is behind us," said Sal Guatieri, an economist at BMO Capital Markets in Toronto.

Sales of previously owned homes rose 5.1 percent in February, while housing starts soared 22.2 percent that month.

Stabilizing the housing market, the main trigger of the current economic slump, is crucial for the economy's recovery.

The inventory of homes available for sale in February was at 330,000, the smallest since June 2002. The February sales pace left the supply of homes available for sale at 12.2 month's worth.

"New and existing home sales have hit their lows for this cycle. We expect housing inventory-to-sales ratios to fall from still-high levels as 2009 unfolds," said Michael Darda, chief Economist, MKM Partners in Greenwich, Connecticut.

"Home prices should begin to flatten out after inventories fall to 7-8 months, which we expect before the year is up."

In other good news for the housing market and the economy, applications for home loans jumped last week as interest rates hit record lows after the Federal Reserve announced it would buy longer-term U.S. government debt.

(Additional reporting by Julie Haviv in New York)

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