Business activity in the U.S. Midwest expanded in December at a faster rate than expected, while hiring picked up a bit to reflect rising levels of new orders, a report showed on Thursday.

The National Association of Purchasing Management-Chicago business barometer fell to 61.5 from 61.7 in November, but exceeded the median forecast of 60.1. A reading above 50 indicates expansion in the sector.

"This is a very strong report overall, reflecting of the manufacturing sector rebounding through the fourth quarter," said Richard DeKaser, chief economist at National City Corp. in Cleveland, Ohio.

The employment component of the index rose to 51.7 from 50.3 in November. Prices paid eased to 83.8 from 94.1 in November, which was a 26-year high, and new orders rose to 66.7 from 61.6.

Many view the NAPM-Chicago as an industrial indicator, even though service firms are also polled, because the Chicago region is relatively industrialized.

"From an economic perspective, it tells us that we are still having a fairly solid growth in both manufacturing and the overall outlook in the near term," said John Shin, senior economist at Lehman Brothers.

The benchmark 10-year Treasury note yield rose marginally on the report and its suggestion of a strong manufacturing economy, while equities prices were up slightly.

Short-term rate futures slipped to show more chance that the Federal Reserve will keep its string of rate hikes going in the new year.