US manufacturing activity expanded in February, breaking loose from an 18-month contraction. Consumer spending grew in January, as did personal income.

The US unemployment rate stunned the experts yesterday by falling to 5.5 per cent in February as job numbers expanded by 66,000, capping a barrage of bullish news. The rise in payroll numbers was the first increase in seven months and the steepest in a year, the Labour Department said.

Economists, who had expected the unemployment rate to increase from January's seasonally adjusted figure of 5.6 per cent, declared the US recession dead. "I think what we saw in February was an indication that the recession is clearly over," said Naroff Economic Advisors president and chief economist Mr Joel Naroff.

"While job gains may not be strong and conditions may bounce around, the worst is clearly behind us," he added. "The problems, especially in some manufacturing sectors, are beginning to slowly ease."

Investors cheered. Wall Street's blue-chip Dow Jones Industrial Average surged 120.06 points, or 1.14 per cent, to 10,645.43 points in the first hour of trade.

The jobs news came a day after US Federal Reserve chairman Mr Alan Greenspan declared an economic recovery was already under way.

In the past nine days, figures have shown the economy expanded 1.4 per cent in the last quarter of 2001, much faster than the first estimate of 0.2 per cent growth.

Latest data showed US businesses stepped up productivity at a rapid annual rate of 5.2 per cent in the last quarter of 2001 - the steepest increase in 18 months.

Unemployment traditionally lags behind the rest of the economy during recoveries, and analysts cautioned that the jobless data could still be volatile for months to come.Nevertheless, market experts agreed that Federal Reserve policymakers were likely to move to a neutral bias - indicating no rate cuts ahead - when they next meet on March 19.

Merrill Lynch chief economist Mr Bruce Steinberg said he still expected the the jobless rate to rise, possibly to 6.0 per cent by mid-year. "We doubt that the Fed can initiate a tightening cycle until the unemployment rate starts declining," he said.

"So if this is the beginning of a decline in the unemployment rate, it would bring tightening forward." Investors in federal fund futures put more than a 50 per cent probability on a tightening at the May 7 meeting of Federal Reserve policymakers, Steinberg noted.

"We still think that is too soon, but what the unemployment rate does in the next few months will be a critical indicator for the Fed."