A regional report on the US factory sector showed surprising strength, suggesting the economy is in good shape despite worries over the nation's mammoth trade and current account deficits, analysts said.
Meanwhile, there was good news on the domestic labour front, as the number of Americans claiming initial jobless benefits fell for a third straight week to the lowest level since October 2000, before the economy tipped into recession.
The Philadelphia Federal Reserve Bank's index of business activity in the highly industrialised mid-Atlantic region rose to 23.9 in February from 13.2 in January. Economists had called for a reading of 17.0.
"This report is very favourable as a whole," said Mr Richard DeKaser, chief economist at National City Corp in Cleveland.
First-time unemployment claims, meanwhile, dropped 2,000 to 302,000 in the week ended February 12th, defying Wall Street forecasts for a rise to 315,000, the Labour Department said yesterday.
US treasury bond prices initially fell following the strong headline reading of the Philadelphia Fed report, extending earlier losses on the unexpected dip in jobless claims. They rebounded a bit when the report showed weakness in its labour and prices-paid components, traders said.
The employee component is disappointing, but thatit needs to be kept in context that the general labour market conditions are getting better," Mr DeKaser said.
The dollar was weaker against the euro and flat against the yen, while US stocks were lower. The currency and equities markets were pressured downward by Fed Chairman, Mr Alan Greenspan's remarks before Congress for a second day, where he again suggested US rates would keep rising.
The drop in initial jobless claims also boosted hopes for February's broader payroll report, due out in March, which is compiled in the pay period which contains the 12th day of the month.
However, US companies are still reluctant to aggressively add staff to keep up with rising demand, some economists said.
The New York-based Conference Board said on Thursday its index of leading indicators fell last month to 115.6, with five of the 10 components falling. A separate report showed the price of goods imported to the United States rose a higher-than-expected 0.9 per cent in January, driven by higher petroleum costs. Wall Street analysts had expected a 0.7 per cent rise.
