Business picked up in the manufacturing sector last month, with companies reporting an increase in both new orders and production levels.

The NCB Purchasing Managers' Index for December pointed to faster expansion among manufacturing companies than in any month since August.

The index, which is designed to offer a snapshot of activity in the manufacturing economy, posted a reading of 53.1 in December, up from 51.3 in the previous month. A level above 50 indicates expansion.

NCB senior economist Mr Eunan King said the bounce-back had been driven by both strong domestic demand and solid export orders from the UK and Eastern Europe.

Mr King pointed out that the index also showed growing employment, with this component of the index posting 51.9 in December.

The Purchasing Managers' Index has been showing manufacturing expansion since the end of 2003, but the rate of growth began to decline around the middle of this year. The latest improvement may indicate a positive turn in sentiment across the manufacturing sector.

NCB said levels of incoming new business increased in December for the 16th month in a row.

The rate of expansion quickened for the second consecutive month, with the increase more substantial than in November.

Export orders also moved ahead more sharply than in the previous month.

The more benign outlook was tempered, however, by a sharp rise in costs, which came as a knock-on effect from the higher oil prices of previous months. The increase was reflected in part in higher prices charged by manufacturers.

Higher costs did not dissuade surveyed firms from taking on new staff, with the index showing an employment increase for the eleventh month in a row.