New orders at U.S. factories rose 2.4 percent in December, higher than forecast, while inventories edged up, a government report showed on Friday.

Analysts polled by Reuters had expected factory orders to gain 1.8 percent after November's revised 1.2 percent rise, originally reported as a 0.9 percent gain.

U.S. manufacturing is being watched closely by the Federal Reserve, in its deliberations on interest rate policy, as it monitors the health of the economy to judge whether a cooling housing market has a broader-than-expected impact on growth.

Click here to visit FOXBusiness.com's Economy Center.

On Wednesday the Fed held interest rates unchanged from June at 5.25 percent and acknowledged recent signs of "somewhat firmer" economic growth and "tentative signs" the housing market was stabilizing.

Factory orders have increased in three of the last four months. New orders in 2006 were 5.3 percent above the previous year, the Commerce Department said.

Excluding transportation, factory orders rose 2.2 percent, the Commerce Department said. Non-defense capital goods orders excluding aircraft, seen as a good gauge of business spending, increased 3.1 percent from a 1.0 percent fall the previous month.

Manufacturing shipments gained 1.4 percent, accelerating from November's 0.2 percent increase, while inventories were up 0.1 percent.

The inventory-to-shipments ratio, a measure of how many months it would take to exhaust stores of goods, eased to 1.22 months' time from a downwardly revised 1.23 in November. Economists say this measure can signal sales may have been stronger than expected.

Click here to visit FOXBusiness.com's Economy Center.