[WASHINGTON] Strong demand for machinery and steel led US factories to increase production in February, according to Federal Reserve data that suggested a manufacturing slowdown could be easing.

Data released on Wednesday showed US factory output rose 0.2 per cent last month, which was a little stronger than the 0.1 per cent gain expected by economists in a Reuters poll.

Overall industrial output fell 0.5 per cent during the month, dragged lower by sagging oil production and a drop in utilities output.

Manufacturing makes up roughly a tenth of the US economy and has cooled over the last year, hit by slower overseas demand and several months of dollar appreciation. A steep decline in oil prices also hit the US energy sector, reducing demand in some factories.

But the dollar has weakened recently and the outlook for US domestic demand has improved due to robust job growth. On Wednesday, the dollar was nearly 3 per cent weaker against a basket of currencies on a year-over-year basis.

In February, US output of goods meant to last at least six months rose 0.4 per cent, led by gains in output of primary metals and machinery.

Economists polled by Reuters had forecast overall industrial production falling 0.3 per cent last month.

The utilities index fell 4 per cent after surging 4.2 per cent a month earlier.

With output on the rise, the per centage of industrial capacity in use fell to 76.7 last month from 77.1 in January.

The Fed views capacity use as a leading indicator in deciding how much further the economy can grow before sparking higher inflation.

REUTERS