US factory activity contracted in December, ending 10 consecutive months of expansion, with activity falling to its weakest since April 2003, according to an industry report.
The Institute for Supply Management said its index of national factory activity fell to 47.7 in December from 50.8 in November, below economists' median forecast for a reading of 50.4. A reading below 50 indicates contraction in the sector.
New orders, a gauge of future growth, fell sharply to 45.7 last month - its lowest since October 2001 - from 52.6 in November.
The December employment index rose slightly to 48.0 from 47.8 in November, while the ISM prices paid index, which measures inflationary pressures within the factory sector, rose to 68.0 in December from 67.5.
US Treasury debt prices surged after the release of the report, while US stocks fell sharply.
"It was a severe drop that seems to have been driven by declines in the most important component: orders," said Pierre Ellis, senior economist at Decision Economics in New York.
"Confidence that export- and investment-led growth will help the economy going forward will be weakened considerably by this report."