U.S. economic activity rose sharply in January, further evidence the recovery is gaining ground, but manufacturing in Texas slipped in February.

The Federal Reserve Bank of Chicago on Monday said its gauge of the national economy rose to +0.02 from -0.58 in December, the second time in three months it was positive.

Also on Monday, however, the Federal Reserve Bank of Dallas said its Texas monthly manufacturing index slumped to -0.1 in February from 8.3 in January.

The Chicago Fed data indicates the economy is on the mend, said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

Today's number was a step in the right direction, but the three-month average remains negative at this point, he said.

Last week a Philadelphia Fed survey showed factory activity in the U.S. Mid-Atlantic region grew more than expected in February as new orders jumped to a more than five-year high.

The Federal Reserve last week raised the discount rate, which it charges for emergency lending to banks, sparking worries on Wall Street that it was the first move by the Fed -- the U.S. central bank -- to withdraw an easy money policy that has helped boost stocks.

On Monday, however, San Francisco Fed President Janet Yellen, speaking in San Diego, said the U.S. economy still needs ultra-low interest rates since inflation is undesirably low, and growth is expected to be sluggish for several years.

The Chicago national activity index's three-month moving average increased to -0.16 in January from -0.47 in December, for its highest since July 2007.

The Chicago Fed said the three-month moving average suggests that, consistent with the early stages of a recovery following a recession, growth in national economic activity is beginning to near its historical trend.

If the three-month value moves above -0.70 following a period of economic contraction, there is an increasing likelihood that a recession has ended, it said.

The monthly activity index from the Chicago Fed was consistently negative from June 2007 through October 2009.

(Additional reporting by Ann Saphir; Editing by James Dalgleish)

Manufacturing