The troubled US manufacturing sector continued to recover rapidly last month although the prospects for more jobs remain muted, according to an industry survey.

The monthly Institute for Supply Management (ISM) index of manufacturing activity rose to 57 in October from 53.7 in September, the highest reading since January 2000.

But although the sub-index for employment rose from 45.7 to 47.7, it remained below the 50 level intended to denote stability.

The survey suggested that, while the US economy continued to expand in the fourth quarter after its burst of speed over the summer, job growth might lag behind.

The survey is an imperfect predictor of actual movements in industrial output, but adds to evidence that the US economy has stepped up its underlying pace of growth from earlier in the year.

The dollar and US stocks went up sharply soon after the data were released. The rise in the index was driven largely by rises in new orders and production, suggesting that manufacturers were responding to the strong summer upturn in demand.

"This is the best report we have seen in quite some time in terms of the overall strength of manufacturing," said Mr Norbert Ore, chairman of ISM's survey committee.

The survey also provided more evidence that US manufacturers might boost growth by rebuilding stocks of finished goods. Inventories continued to contract in October, according to the survey, although more slowly than in previous months.

Official data show the ratio of inventories to sales across all businesses has dropped to historically very low levels, and most economists - and the Federal Reserve - suspect businesses will react to stronger demand by restocking at some point. While the inventory/sales ratio has fallen as companies improve warehousing and delivery techniques, the ratio has slid to levels widely considered unsustainable in the medium term.

"Businesses have experienced greater-than-expected demand and inventories have fallen sharply," said Mr Stephen Gallagher of SG. "As a result of strong orders and weak inventories, delivery times are lengthening and backlogs are growing."

He estimated the figures were consistent with the economy expanding by 3.5 per cent in the fourth quarter - less than half the 7.2 per cent first estimate of GDP growth for the third quarter, but still around the estimated long-run trend growth rate for the US.