U.S. manufacturing grew in February, though more slowly than expected, while consumer spending rose for a fourth straight month, showing the economy continued a modest recovery.

The expansion in national factory activity in February lagged growth in the prior month, a private industry report showed.

The message is continuing progress for the economy, if not as fast as hoped, said Pierre Ellis, a senior economist at Decision Economics in New York.

Recent economic data had suggested the recovery still faced major headwinds, including Friday's report of a surprise drop in January home sales to a seven-month low and weaker consumer sentiment.

Manufacturing has been among the strongest parts of the economy in the recovery, while consumer spending has been held back by stubbornly high unemployment.

Analysts worry the economy's recovery from the worst downturn since the 1930s could stumble in the second half of the year if spending remains lackluster. Consumer spending is considered key to recovery because it accounts for roughly two-thirds of economic activity.

Among bullish factors in the U.S. manufacturing report was a rise in the employment index, which some analysts said could signal the labor market will soon start to improve.

On Friday, the U.S. government is to release its non-farm payrolls report, the most closely watched measure of the country's labor market. It is expected to show 50,000 job losses in February, compared with a decline of 20,000 in January, and the U.S. unemployment rate ticking up to 9.8 percent from 9.7 percent.

The weak employment picture has been at the center of attention in Washington, where President Barack Obama and Democratic legislators hope to get a jobs bill signed into law.

White House economic adviser Larry Summers said on Monday that winter blizzards were likely to distort the February jobless figures.

The blizzards that affected much of the country during the last month are likely to distort the statistics. So it's going to be very important ... to look past whatever the next figures are to gauge the underlying trends, Summers said in an interview with CNBC, according to a transcript.

The Institute for Supply Management (ISM) reported that its index of national factory activity declined to a reading of 56.5 in February, above the 50 level indicating growth but down from 58.4 in January. The median forecast of 80 economists surveyed by Reuters was for a reading of 57.5.

Overseas, factory activity expanded across Asia last month, and manufacturing in the euro zone grew slightly faster than previously thought.

U.S. stocks closed higher on Monday, supported in part by the day's economic data. U.S. government debt prices ended mostly flat, and the U.S. dollar rose against the euro and yen, with Treasuries and currencies largely driven by concerns over Greece's debt.

The ISM number is still at the second highest level since late 2005, said Peter Boockvar, equity strategist at Miller Tabak and Co in New York. The data provides more evidence that manufacturing continues to lead this economic recovery.

The U.S. economy expanded strongly in the second half of 2009, driven by a sharp slowdown in the rate at which business liquidated inventories. Analysts expect inventory rebuilding and continued improvement in business spending to support growth into the first half of 2010.

Consumer spending rose 0.5 percent in January, after advancing by 0.3 percent in December, the Commerce Department said on Monday. The December figure was revised up from the previously reported increase of 0.2 percent.

Analysts polled by Reuters had expected consumer spending to increase 0.4 percent in January.

Consumer spending rose at a modest 1.7 percent annual rate in the fourth quarter from 2.8 percent in the prior period.

Spending adjusted for inflation rose 0.3 percent in January, picking up from a 0.1 percent gain the prior month. Personal income edged up 0.1 percent, after increasing 0.3 percent in December, the Commerce Department said. That was well below market expectations for a 0.4 percent increase.

Another report showed U.S. construction spending fell for a third straight month to its lowest level since June 2003 in January.

(Reporting by Caroline Valetkevitch and Lucia Mutikani; Additional reporting by Angela Moon, Ellen Freilich and John Parry in New York; Editing by Leslie Adler)

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