Factory activity in the U.S. Mid-Atlantic region stagnated in August, with a measure of growth falling to its weakest level this year, a survey showed on Thursday.

The Philadelphia Federal Reserve Bank said its business activity index was at 0.0 in August, its weakest in since December 2006, versus 9.2 in July. Economists polled by Reuters had forecast a reading of 9.0.

Any reading above zero indicates growth in the region's manufacturing sector.

U.S. Treasury debt prices extended gains following the release of the data, while stocks extended a sharp decline.

The concern is that the global economy may weaken and the Philly Fed is adding to the skittishness in the stock market -- this just adds to the level of uncertainty, said Steve Goldman, market strategist at Weeden & Co. in Greenwich, Connecticut.

The Philadelphia Fed's employment index rose to 21.2 in August from 4.1 in July, while the new orders index eased to 7.1 from 11.3 last month.

The six-month business conditions outlook rose to 36.2 in August from 30.4 in July, while the six-month capital expenditures outlook rose to 26.3 from 18.8 in last month.

A Philadelphia Fed spokesman said the index may not fully take into account recent turmoil in the financial markets caused by tighter credit conditions.

We had a limited number of firms that were reporting since the changes in the financial markets, said Michael Trebing, senior economic analyst at the Philadelphia Fed. (Additional reporting by Jennifer Coogan and Pedro Nicolaci da Costa)