Philly Fed factory index tumbles in February

By Burton Frierson

NEW YORK (Reuters) - Factory activity in the U.S. mid-Atlantic region crashed to an 18-year low in February, underperforming economists' worst expectations as the year-old recession continued to exact a heavy toll on manufacturing.

The Philadelphia Federal Reserve Bank reported on Thursday that its business activity index tumbled to minus 41.3 from negative 24.3 in January.

"This is grim," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

Any number below zero indicates contraction in the region's manufacturing sector.

The deterioration was led by falling new orders and unemployment, with the survey's jobs gauge hitting its lowest since the survey's launch in 1968.

On Wall Street, stocks cut their gains after the surprisingly weak report.

Government bonds, which generally benefit from weak data, were lower on the day, but mainly because investors were worried about the enormous borrowing the Treasury will need to do to pay for its economic recovery efforts.

News in the report of bloated inventories suggested tough slogging ahead for companies, as this can mean they must sell off stockpiled goods before they can consider increasing production.