US manufacturing activity jumped in December, giving Wall Street a strong boost in the first trading day of the New Year, writes Conor O'Clery, North America Editor, in New York

The Dow Jones, which has seen three straight years of decline, soared more than 200 points in early trading yesterday, with similar strong showings by the tech-heavy Nasdaq and Standard & Poor's 500 index. The Dow Jones closed up 3.19 per cent at 8,607.52. European markets were also stronger, with the ISEQ ending the day up almost 3 per cent.

The upbeat mood was underlined by a Wall Street Journal survey published yesterday, which showed that after a tepid year of corporate spending, there was widespread agreement among 55 top US analysts who took part that a modest economic recovery would take root this year.

The newspaper said in an editorial that the most under-reported story of 2002 was the US economy's "amazing resilience" in the face of great difficulties, and forecast that history may find the past three years "merely a pause in the economic renaissance of the past 20 years".

Returning after the New Year's Day break, Wall Street traders were cheered by news that US manufacturing activity grew in December for the first time in four months. The Institute for Supply Management said its index of business activity rose to 54.7 in December from the 49.2 in November. A reading above 50 indicates growth in the sector.

The improvement in December was attributed to a surge in new orders in November, possibly for the Christmas season, but it was unclear if that momentum could be sustained. Analysts had forecast a reading of 50.1 for the month. The last time the index was above 50 was in August.

The experts surveyed by the Wall Street Journal said uncertainties in 2003, from conflict in Iraq to new rounds of terrorism, could derail the outlook for even modest growth.

But with corporate pre-tax profits up 12 per cent in the third quarter in 2002 from a year earlier, the consensus of the analysts was that the economy would gradually build momentum as companies replenish depleted inventories and invest more heavily in equipment.

The average forecast was for real gross domestic product to grow at an annual rate of 2.7 per cent in the first quarter, 3.2 per cent in the second quarter and 3.7 per cent in the final two quarters of the year.

The analysts believed that the unemployment rate would fall to 5.7 per cent by the end of this year from current levels of about 6 per cent. Some 403,000 people filed new claims for jobless benefits last week, up from 390,000 new filings the week before.

Most said that business profits would rise by at least 7 per cent for the year.

US President George Bush said yesterday he would unveil an economic-stimulus package next week, promising a plan that would benefit all Americans and rejecting criticism that his policies are tailored to help the wealthy.