Factory activity in the Mid-Atlantic United States (search) expanded much more rapidly this month, a regional central bank said on Thursday in a report that countered growing fears of a slowdown in economic growth.

The Philadelphia Federal Reserve (search) said its business activity index jumped to 25.3 in April from 11.4 in March, confounding Wall Street forecasts of a dip to 10.0. A measure above zero denotes growth in the sector.

"It's a pretty solid performance, a good indicator that the manufacturing sector is probably still growing nicely," said Patrick Fearon, senior economist at A.G. Edwards & Sons.

The survey helped to offset recent jitters that the economy might be headed for a soft patch, even as inflation appears to be picking up.

Earlier this month, reports showing slower consumer spending suggested high gasoline prices might be taking their toll on Americans' ability to shop, and thereby support economic growth.

But apparently the same was not the case in the manufacturing sector, which was chugging along nicely despite a sharp increase in prices paid. The survey's price gauge surged to a three-month high of 50.5 in April from 29.7 in March.

A third of survey respondents reported higher prices for their own goods, due mainly to higher energy and raw materials costs, noted Michael Trebing, senior economic analyst at the Philly Fed.

In a positive omen for the labor market, the employment index climbed to 16.8 from 10.1 in March, while new orders soared to 20.3 from 13.2. In contrast, the six-month outlook for business conditions eased to 27.5 from 29.8.

The apparent improvements in hiring conditions were also a positive sign for growth, since the employment sector has been a salient laggard in the latest economic recovery.

The rise in the Philly Fed's jobs measure came just after the government reported a sharp decline in weekly jobless claims, raising hopes for a solid increase in total U.S. payrolls for the month of April.

The strong reading took financial markets by surprise, causing government debt to extend losses as investors foresaw the need for further interest rates increases from the Federal Reserve (search). Stocks were already higher after several days of losses, encouraged by strong earnings from major U.S. corporations.

The Mid-Atlantic survey is one of the first indicators of U.S. manufacturing every month and is often used to gauge the overall state of factories nationwide.