Manufacturing, housing data flag underlying strength

WASHINGTON (Reuters) - U.S. manufacturing output rose solidly in January and a gauge of factory activity in New York state hit a 1-1/2-year high in February, showing a solid underpinning for the economic recovery.

The firmer tone was also in evidence in another report on Wednesday that showed optimism among home builders approached a five-year high this month, a good omen for the struggling housing market.

The reports added to a run of fairly upbeat data, even though overall industrial production was flat last month as unusually mild winter weather weighed on utility output.

"What we are seeing here is confirmation of the positive momentum we have seen in the economy over the past few months," said Millan Mulraine, senior macro strategist at TD Securities in New York.

Factory production increased 0.7 percent, the Federal Reserve said, after an upwardly revised 1.5 percent rise in December. The December increase was previously reported as a 0.9 percent gain.

Manufacturing was buoyed by a 6.8 percent jump in motor vehicle output. But production at utilities plunged 2.5 percent, the second straight month of big declines.

A 1.8 percent drop in mining production, the first decline in almost a year, also helped damp industrial output last month. However, overall production was stronger than first thought in December, rising 1 percent as opposed to the previously reported 0.4 percent gain.

"The mining sector has been enjoying a renaissance over the past couple of years and, barring a collapse in oil prices, we expect that will continue for some time," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

"So everything looks rosy for manufacturers now, but we're still concerned that Greece's exit from the euro zone sometime this year will stop the global turnaround in its tracks."

Concerns about Greece dominated sentiment on U.S. financial markets, where the broader Standard & Poor's 500 index touched a fresh seven-month high before giving up some gains.

U.S. Treasury debt prices were marginally higher, while the dollar was little changed against a basket of currencies .

OFF TO A FIRMER START

Data, including employment, manufacturing and retail sales, so far suggest the economy got off to a firmer start in 2012, prompting analysts to scale back their expectations of a sharp pull-back in first-quarter growth.

The economy grew at a 2.8 percent annual pace in the last three months of 2011, with a build-up of inventories accounting for two-thirds of the rise.

Economists believe businesses have enough stock on hand to meet demand. That, together with a mild recession in the euro zone as a result of the debt crisis, could take some edge off the U.S. economy.

But there are no signs manufacturing is wilting. A report from the New York Federal Reserve showed a gauge of factory activity in New York state rose to its highest level in more than 1-1/2 years in February.

However, slowing new orders and further declines in unfilled orders suggested activity in that region could be close to peaking. There was a rise in shipments and companies increased hours for existing workers.