WASHINGTON (Reuters) - A U.S. appeals court on Tuesday upheld federal regulations requiring television set manufacturers to install tuners that can receive high-quality digital broadcast signals in new sets starting next summer.

The Federal Communications Commission in August 2002 ordered that digital tuners be included in new sets as part of an effort to jump-start the lagging transition to crisper digital television, targeted for completion by 2007 but will likely be delayed.

The Consumer Electronics Association, which represents manufacturers such as LG Electronics Ltd.'s Zenith and Sony Corp., had challenged the rules, arguing that the FCC lacked the authority to impose such a requirement and that the order was arbitrary and capricious.

The U.S. Court of Appeals for the District of Columbia found that the FCC had the authority and "reasonably determined" requiring TV manufacturers to phase in digital tuners would increase production and lower costs.

"This will make the purchase of DTV equipment more attractive to consumers generally and help break the logjam discerned by the commission," Judge John Roberts said in the decision for the three-judge panel that heard the case.

The transition to digital TV, which was designed to be mostly completed by 2007, has been slowed in part by high-priced equipment needed to receive the higher quality signals as well as limited available digital programming.

"This will ensure that consumers are able to enjoy high-quality digital broadcast programming without the hassle and expense of hooking up a separate set-top box," said FCC Chairman Michael Powell in a statement.

Television broadcasters are supposed to give up their old analog airwaves either by the end of 2006 or when the penetration rate for digital television crests 85 percent, though few analysts or government officials expect the deadline to be met.

Congress and the FCC plan to reclaim the airwaves so they can be used for other purposes, like wireless communications.

Close to two-thirds of local television stations are broadcasting in digital, covering most U.S. television households, but it is unclear how many households have the equipment to see the crisper signals.

Manufacturers will have to include digital tuners in half of televisions with screens 36 inches or larger by July 2004. Digital tuners will be phased into smaller sets over the next three years.

"CEA fully intends to follow the law," said electronics association spokeswoman Jenny Miller. "What will be interesting now will be the response of broadcasters and other DTV industries in promoting antenna reception and providing compelling and ample programming."

The group had argued that less than 15 percent of American households rely on over-the-air broadcasts, instead getting the channels through cable or satellite services. They also said adding tuners would raise the price of television sets by as much as $250 each.

CEA estimated about 4.3 million digital television units will be sold this year, and 5.8 million in 2004.