The Philadelphia Federal Reserve Bank said its business activity index rose to 7.3 from a revised 6.8 in December. That was shy of economists' expectations for 10.0, according to a Reuters poll.

December was originally reported as 10.3.

Any reading above zero indicates expansion in the region's manufacturing. The survey covers factories in eastern Pennsylvania, southern New Jersey and Delaware.

It is seen as one of the first monthly indicators of the health of U.S. manufacturing leading up to the national report by the Institute for Supply Management.

New orders slipped to 6.9 from 10.7, while inventories improved to minus 6.3 from minus 11.5.

"The economy is slowly accelerating; we're not moving fast," said Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.

"We're moving in the right direction but not with enough speed to create lots of jobs real fast."

U.S. stocks cut gains immediately after the data, while Treasuries trimmed losses and the euro pared its advance against the U.S. dollar.

The employment components improved modestly, with the gauge of the number of employees edging up to 11.6 from 11.5 and the average work week index gaining to 5.0 from 2.8.

Survey respondents' view on the coming months also strengthened with the gauge of business conditions for the next six months rising to its highest since March 2011 at 49.0 from 40.0.

(Reporting By Leah Schnurr, additional reporting by Caroline Valetkevitch; Editing by Chizu Nomiyama)

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