The survey by the Institute for Supply Management shot up to 66.2 from 62.8 a month earlier.

The ISM survey, seen as a key measure of the US industrial economy, showed a much better result than the 61 points expected by Wall Street analysts. Any figure over 50 points indicates expansion.

The report "is very strong, a positive sign for the industrial sector, which has been weak," said Dick Rippe, economist at Prudential Securities.

It was the sixth consecutive month of growth, although the ISM said the pace of growth remained uneven.

"The manufacturing sector enjoyed its best month since December 1983," said ISM survey chief Norbert Ore.

"The month-over-month growth from November to December indicates a rapid recovery taking place in the sector, though there are still some businesses lagging and wondering when they will see the improvement that others are experiencing."

Still, the ISM said its December report is consistent with a sizzling 8.6 per cent growth rate for the overall economy, defying expectations of a cooling after the 8.2 per cent growth in the third quarter.

Significantly, the employment index component of the ISM report rose to 55.5 in December from 51.0 in November, suggesting jobs are growing again in US industry.

The ISM's production index rose 4.7 points in December to 73, reflecting the eighth consecutive month of growth.

And the new orders component of the index exploded to 77.6, up 3.9 points from November to the highest level since July 1950.

"That the manufacturing sector had been doing very well in recent months was never in question," noted Anthony Karydakis at Bank One.

"The key issue now is how strong the momentum in the rest of the economy will be in the next couple of quarters."

"We think the survey has now more or less peaked, but the key point here is that there is no reason at all to expect it now to begin trending downwards," added High Frequency Economics' chief economist Ian Shepherdson.

John Silvia, chief economist at Wachovia Securities, said the report shows that the economy remains resilient, but it also shows some signs pointing to inflation.

"Despite conventional wisdom, the economy continues to grow above trend, and inflation, while modest, is rising and not declining," he said.

"Today's ISM reading of 66.2 suggests a solid manufacturing sector, with improvement in the employment outlook an additional bonus."