Factories rebound, Fed cites growth concerns

NEW YORK (Reuters) - U.S. manufacturing rebounded in December after a contraction in November, while construction spending fell less than expected in November, according to data on Wednesday suggesting a moderate economic expansion.

However, the data was eclipsed by minutes from the Federal Reserve's December 12 policy meeting, which showed some members were becoming a bit anxious about the economy and a separate report saying private-sector employment fell in December -- the first time in three years.

The Fed minutes released on Wednesday said that while inflation was the predominant concern, some members felt the "subdued tone" of economic data meant risks to growth had increased.

"Several members judged that the subdued tone of some incoming indicators meant that the downside risks to economic growth in the near term had increased a little and become a bit more broadly based than previously thought," said the minutes.

Government bond prices edged higher, while the dollar initially fell on the minutes. Stocks dipped after the minutes were released.

But analysts said little weight should be attached to the minutes as they had been overtaken by recent data pointing to a resilient economy.

"This Fed meeting was held before the spate of reports, starting with retail sales in the middle of December, that showed the economy looking more resilient," said Cary Leahey, managing director at Decision Economics in New York.

Earlier, the Institute for Supply Management said its index of national factory activity climbed to 51.4 from 49.5 in November -- above the 50-threshold that separates growth from contraction. Analysts had forecast a reading of 49.9.

"That makes the general economy look steadier and even firmer than it was thought to be," said Pierre Ellis, senior economist at Decision Economics in New York.

INFLATION PRESSURES MODERATING

Analysts were also encouraged by the decline in the ISM's prices paid index, which measures inflation pressures at the industrial level. The index fell to 47.5 from 53.5, while a measure of new orders climbed to 52.1 from 48.7.

"The fact the price index is down is good news," said Robert MacIntosh, chief economist at Eaton Vance Management in Boston. However, for the Fed the overall index is "a small piece of data but everything else being equal, this would make them hold off from a cut."