U.S. orders for costly big-ticket items rose last month as gains in orders for cars, planes and semiconductors more than offset a continuing decline in demand for computers, the government said on Tuesday.

Durable goods orders increased 2.9 percent in May to $188.55 billion following a 5.5 percent drop in April, the Commerce Department said. Excluding the volatile transportation sector, orders for durable goods -- which include items like refrigerators, washing machines and airplanes that are meant to last for several years -- rose 2.7 percent last month.

The numbers, coming on the first day of a two-day meeting of Federal Reserve policymakers, bucked Wall Street expectations. Analysts polled by Reuters on average had estimated durable goods orders were unchanged in May and were down 0.1 percent excluding the transportation sector.

U.S. Treasuries dipped briefly after the durables numbers came out but then snapped back as investors awaited Wednesday's interest-rate announcement from the Fed.

Although notoriously volatile, the report offered a glimmer of hope for the hard-hit manufacturing sector and for the economy as a whole. Economists said that it should however be taken in the context of April's extreme weakness.

Still, some speculated that the report could bolster the argument that the Fed will opt for a smaller quarter-percentage point interest rate cut rather than a larger half-point when its meeting wraps up on Wednesday.

``Overall, it's a very good number. We are not prepared yet to call an end to the inventory correction process but we will note that a pickup like this could be consistent with a new trend up,'' Paul Christopher, economist at A.G. Edwards & Sons Inc. in St. Louis.

``This number today is going to pull more of those people out of the 50 (basis point rate cut) camp and back into 25, where they should be,'' he added.

Despite the increase last month, durable goods orders were below last year's levels, when consumers and firms were gobbling up big-ticket items as the economy roared ahead.

Durable orders last month were down 11.5 percent from May of last year. Year-to-date, durable orders this year were down 8.9 percent through May compared to the same period last year, Commerce said.

Last month, orders for automobiles and car parts jumped 7.4 percent to $38.55 billion, following a 3.1 percent decrease in April. Aircraft orders soared 2.9 percent in May following a 13.8 percent decline in the prior month.

Semiconductor orders skyrocketed 35.3 percent last month, but that followed a 40 percent plunge in April, the government said.

The main losers in the durable goods report were computers and communications equipment.

Orders for computers fell for the fifth straight month in May, falling 3.1 percent after a 6.9 percent drop in the previous month. Compared to May of last year, computer orders were down 19.7 percent last month.

Communication equipment orders, meanwhile, fell 11.5 percent last month following a 5.7 percent decline in April.

The increase in overall orders led to a decline in durable inventories, which fell for the fourth straight month, the department said. Inventories dropped 0.5 percent in May following a 0.2 percent decline in April. However, inventory levels were still 1.5 percent higher in May than during the same month last year.

The U.S. central bank is widely expected to lower rates for the sixth time this year to boost the struggling economy, but analysts are divided over how big of a cut the Fed will make.

The Fed has reduced rates by a half-percentage point in each move this year, bringing the key fed funds rate -- which influences borrowing costs for items such as credit cards and home mortgages -- to 4 percent, its lowest level in seven years.

Analysts have been closely divided over how steeply the central bank will choose to reduce rates.

Those in the quarter-point camp think the Fed will take such an action in light of the aggressive moves already taken by the Fed and tax rebates in the pipeline, which are expected to boost spending, and in turn, growth.

A decision is expected at 2:15 p.m. on Wednesday.