NEW YORK (CNN/Money) - Orders for long-lasting goods rose in June, the government reported Wednesday, notching the first increase in two months but coming in below economists' estimates.

Orders for durable goods rose 0.7 percent to $191.7 billion in June, the Commerce Department reported, after coming in at a revised 0.9 percent decline in May. Economists had expected an increase of 1.5 percent, according to Briefing.com.

Excluding defense, orders fell 0.4 percent, and excluding transportation, orders dropped 0.6 percent.

The durables figure is volatile as orders are often grouped together in specific months, and it falls into a string of disappointing economic reports for June, underscoring the Federal Reserve's ability to take a measured approach in lifting interest rates.

"Given the volatility of the report, I don't put a lot of credence in the forecasts," said Bill Cheney, chief economist with MFC Global Investment Management. "The headline number is the news and the fact that it went up signals that the recovery isn't falling apart."

Following the report, stocks opened flat and bond prices inched lower, sending the yield on the 10-year note up to 4.62 percent.

The continuing conflict in Iraq boosted demand for transportation goods by 4.2 percent to $55.5 billion amid strong orders for defense aircraft and parts, the Commerce Department reported.

The gain in transportation may expand into other sectors as hinted by regional manufacturing surveys, which often act as a proxy for the national reports, according to a Bear Stearns note issued after the durables figures.

"This picture of softness, therefore, could be quickly erased if orders rebound sharply in July as the Philly and New York Fed suggest could happen," Bear Stearns said.

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In mid-July, the Federal Reserve Bank of New York said the business conditions index of its Empire Manufacturing Survey climbed to 36.5 in July, after dipping to a revised 29.9 in June.

Meanwhile, the Philadelphia Fed said its July business activity index climbed to 36.1 in July, when analysts had looked for a pullback to 25.0 from June's 28.9.