WASHINGTON (Reuters) - Employers hired more workers than expected in February, bolstering hopes job growth was improving despite higher taxes and deep government spending cuts.

A second report on Wednesday suggested underlying strength in manufacturing remained intact, which should help to support the economy after output barely grew in the final three months of 2012.

The ADP National Employment Report showed private employers added 198,000 jobs to their payrolls last month, beating economists' expectations for an increase of 170,000.

Adding to the report's strong tenor, January's count was revised to show 23,000 more jobs added than previously reported. The report is jointly developed with Moody's Analytics.

"It feels like underlying job growth continues to improve, and at the current pace, this should be enough to start bringing down unemployment," said Mark Zandi, chief economist at Moody's Analytics. The jobless rate is currently at 7.9 percent.

"In a really rip-roaring economy, we'd be creating closer to 300,000 jobs a month or a bit north of that. So we're not there yet, but we're moving in the right direction," he said.

The number may bode well for the government's more comprehensive labor market report, due on Friday, which includes both public and private sector employment.

According to a Reuters survey of economists, nonfarm payrolls likely increased 160,000 in February, up from 157,000 in January.

A solid gain in construction jobs has underscored recent signs of improvement in the housing market. Home prices have been rising since last February and the sector last year contributed to overall U.S. growth for the first time since 2005.

A separate report from the Commerce Department showed orders for manufactured goods dropped 2.0 percent, weighed down by a plunge in demand for transportation equipment.

But orders excluding the volatile transportation category increased a healthy 1.3 percent, pointing to underlying strength in the sector that carried the economy out of the 2007-09 recession.

The data helped Wall Street to resume its climb into uncharted territory, with the Dow Jones industrial average setting another intraday record.

The dollar rose against a basket of currencies, while prices for U.S. Treasury debt prices fell.

"Manufacturers and business leaders are telling us that demand has picked up, that they are short of inventory and that they are adding workers," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York.

Hiring ticked up despite worries about government belt-tightening and higher taxes, though Zandi said those factors could slow the pace of growth later this year.

Crucially, hiring last month was spread evenly across small, medium and large business, the report showed. Private sector hiring in January was skewed heavily toward small businesses.

(Reporting By Steven C. Johnson and Lucia Mutikani; Editing by Andrea Ricci)