US manufacturing grew at the fastest pace in six months in December, capping a late-year rally in the sector, while a rise in new orders suggested good momentum in 2012, an industry report showed yesterday.

The Institute for Supply Management said its index of national factory activity rose to 53.9, the best showing since June, from 52.7 in November.

The reading topped expectations of a 53.2 reading, according to a Reuters poll of economists. An index reading above 50 indicates expansion.

"It's a decent report overall," said Tom Porcelli, chief US economist at RBC Capital Markets, New York.

"We're not roaring ahead, but it's also not collapsing. That's consistent with our overall view of the economy in 2012."

Stocks added to their gains after the report, with the Dow and S&P 500 indices each advancing two per cent, while the euro rose against the dollar and US Treasuries fell as investors took on more risk.

New orders, which economists consider a leading indicator of future activity in the sector, rose to 57.6 from 56.7, while the employment component jumped to 55.1 from 51.8.

The last component, which also hit its highest level since June, is encouraging for an economy struggling under the weight of an 8.6pc jobless rate.

Data on Friday is expected to show the economy added 165,000 new jobs in December, but also a slight rise in the jobless rate to 8.7 per cent.

"Overall, 2011 is finishing on an upswing, with a lot of indicators pointing positive," said Bradley J Holcomb, chairman of the ISM Manufacturing Business Survey. He said customer inventories fell, suggesting increased demand.

Another report showed a rise in private and public projects lifted construction spending to its highest level in nearly 18 months in November, another sign that the economy picked up speed in the fourth quarter of 2011.

Small business borrowing improved in November, nearing a four-year high, according to the most recent Thomson Reuters/PayNet Small Business Lending Index.

Economists are not expecting a full recovery for the economy in 2012, particularly with the housing market still in the doldrums and unemployment elevated.

Goldman Sachs said it expected growth in 2012 to look similar to 2011, at a below-trend pace.-Reuters