The U.S. manufacturing sector grew for a fifth straight month in December, its best showing since early 2006, adding to hopes of a more robust U.S. recovery in 2010.
But a separate report showed that a decline in homebuilding activity in November pushed construction spending beyond a six-year low.
The Institute for Supply Management said its index of national factory activity rose to 55.9 in December from 53.6 in November. The median forecast of 60 economists surveyed by Reuters was for a reading of 54.3.
The December reading was the highest since April 2006, when the index stood at 56.0. A reading below 50 indicates contraction, while a number above 50 means expansion.
The ISM index's price component rose to 61.5 in December from 55.0 the prior month, while the closely watched employment component rose to 52.0 from 50.8.
While the U.S. economy was still shedding jobs through November, the pace of overall losses has slowed. Economists polled by Reuters expect data later this week to show employers slashed 8,000 jobs last month after losing 11,000 in November.
In early 2009, the economy was losing around half a million jobs per month, according to monthly government data.
U.S. stock indices held gains of more than 1% after the data, while the dollar trimmed losses against the euro.
In a report reflecting the prolonged weakness in the sector, the Commerce Department said construction spending fell 0.6% in November. The decline to $900.1 billion, the lowest level since July 2003, was the seventh straight month of weakness in the industry.
Spending on private home building dropped 1.6%, the biggest decline since June, after rising 4.8% the prior month.
October construction spending was revised down to show a 0.5% drop, instead of being flat as the government previously reported.