Manufacturing expands in January: ISM report

NEW YORK (Reuters) - U.S. factory activity unexpectedly expanded in January, rebounding from a contraction the previous month and rising for the first time since June, according to an industry report released on Friday.

The Institute for Supply Management's index of national factory activity rose to 50.7 in January from 48.4 in December. The latest reading topped economists' median forecast of 47.3. A reading above 50 indicates expansion.

The prices paid index rose to 76.0 in January, the highest since July 2006, from 68.0 in December. New orders rose for the first time since May 2007, climbing to 49.5 in January from 46.9 in December.

But employment fell to 47.1, the lowest reading since September 2003, from 48.7 in December. That may be a key consideration for investors and the Federal Reserve after a surprisingly weak report on U.S. non-farm payrolls in January, released earlier on Friday.

"We are having a lot of mixed signals," said Stuart Hoffman, chief economist with PNC Financial Services in Pittsburgh.

"You are not getting a smoking gun that screams recession. The economy is very weak. It's on the edge of recession but the data are mixed enough so that you can't say a recession has begun," Hoffman said.

(Reporting by John Parry; Editing by Frank McGurty)