The Institute for Supply Management's closely watched survey on the manufacturing sector showed an overwhelmingly positive reading for February -- for the first time since July of 2000.

The ISM's monthly Purchasing Managers Index showed a 54.7 reading, much stronger than expected, as factories ramped up activity for the first time in 18 months to meet a wave of new orders.

"February signals the turnaround for manufacturing based on a strong PMI reading and an accelerating trend in new orders and production. Most of the indexes are heading in the right direction at this point," said Norbert J. Ore, ISM's director.

A surge in new orders pushed factories to raise production even as they continued to whittle down inventories. However, the report showed factories continued to shed jobs in February, indicating it will take time before a brightening economic outlook brings relief to manufacturing workers, who have been hardest hit by the recession.

The Index rose to 54.7 in February from 49.9 in January, breaking above the 50 level and indicating expanding factory activity after 1-1/2 years of decline.

The New Orders Index, a barometer of demand for factory goods in the pipeline, jumped to 62.8 from 55.3 in January, holding above 50 for a third straight month. The Production index rose to 61.2 from 52.0 in January, while the inventories index fell to 39.5 in February from 40.5.

Reuters contributed to this report.