WASHINGTON — New-home sales turned up and factory orders soared in July, suggesting the economy was on stable footing before the recent credit crunch took a turn for the worse.

The Commerce Department reported yesterday that sales of new homes rose 2.8 percent to a seasonally adjusted annual rate of 870,000 units. The increase came after a 4 percent drop in June.

The department also reported that orders placed with factories for big-ticket goods jumped 5.9 percent in July, the most in 10 months.

The latest economic news was better than analysts had expected. They had forecast that home sales would fall and factory orders would rise by a much smaller 1 percent.

On Wall Street, the reports cheered investors who have worried in recent weeks about the spreading credit troubles. The Dow Jones industrials vaulted 142.99 points to close at 13,378.87.

The July home sales report comes as credit standards have been tightening on mortgages. Credit problems took a turn for the worse in August, making it even harder for some buyers to get financing. So home sales in coming months will likely show renewed weakness, experts said.

"Sales in August will face significant headwinds from further tightening in credit conditions, reduced availability of mortgage credit as many lenders shuttered their doors and upward pressure on mortgage rates, especially for non-conforming jumbo loans" of more than $417,000, said Global Insight economist Brian Bethune.

By region, sales in the western U.S. shot up 22.4 percent in July and increased 0.6 percent in the South. Sales, however, tumbled 24.3 percent in the Northeast and were down 0.9 percent in the Midwest.

The improvement in overall sales doesn't change the big picture of the housing market, which has been suffering through a deep slump for more than a year. Sales are down 10.2 percent from last year, and the weakness is expected drag on into next year.

Home prices were mixed. The median price of a new home was $239,500 in July, up 0.6 percent from last year (the median price is the point where half sold for more and half sold for less). The average home price, however, dropped to $300,800 in July, down 3.4 percent from the same month last year.

In the manufacturing report, gains were widespread, indicating that capital spending — a key to a healthy economy — had gained momentum. Orders increased for machinery, automobiles, metal products, airplanes and communications equipment. That blunted a drop in demand for computers, electrical equipment and appliances.