Manufacturing in New York state rose in March to a nine-month high, while prices paid also accelerated in another sign inflation is starting to build.

The New York Federal Reserve on Tuesday said its Empire State general business conditions index rose to 17.50 from 15.43 in February, topping a Reuters forecast of 17.00. It was the highest level since June 2010.

But the new orders and shipments indexes both declined, suggesting there was some underlying weakness.

Manufacturing is running strong right now, but we may be turning the corner, given the moderation in Asia, especially China, said Yelena Shulyatyeva, U.S. economist at BNP Paribas in New York.

New orders have moderated quite a lot. It's sending a weaker signal about manufacturing than what the headline number suggests.

The new orders index fell to 5.81 from 11.80, while shipments declined to 1.62 from 11.31.

The prices paid index rose to 53.25, the highest level since August 2008, from 45.78. Prices received also rose as manufacturers passed along costs.

In a positive sign, employment gauges expanded. The index for the number of employees rose to 9.09 from 3.61 in February, and the average employee workweek index was up at 15.58 from 6.02.

The index of business conditions six months ahead was little changed at 49.35 from 49.4 in February. The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.

Chris Low, chief economist at FTN Financial, said the Empire State index is more volatile than the national report from the Institute for Supply Management and the regional figures from Chicago and Philadelphia, especially given the rough weather conditions in January and February.

The survey suggests a pickup in hiring in March but a slowdown in the leading components of the index, which may lead to a slowdown down the road. In the meantime, price pressures are evident, but it is not yet translating into efforts to control payroll costs, according to Low.

PRICES IN PLAY

A separate report showed U.S. import prices rose for the fifth consecutive month in February as political turmoil in the Middle East helped pushed oil prices higher. For details, see

With rising gasoline prices, inflation pressure will remain high for the next several months, according to Wells Fargo analysts.

Inflation concerns recently have come to the forefront on worries that rising energy and commodity prices could temper the economic recovery.

Investors will get another look at the potential for inflation later in the week with reports on producer and consumer prices. Producer prices are expected to rise for an eighth month, though the index is likely to have slowed from January, while the core consumer price measure is expected to slow.

U.S. homebuilder sentiment in March ticked up to its highest level since May 2010 after stagnating at the same level for four months but was still well below levels regarded as healthy, a survey released on Tuesday showed.

The data releases were largely ignored by financial markets where investors remained focused on the fallout from the natural disaster and nuclear crisis in Japan.

Investors will also be watching a statement from the Federal Reserve later on Tuesday for any comments on the impact to the global outlook from the events around the world. The central bank looks set to hold monetary policy steady and will likely nod to recent improvement in the economy.

(Additional reporting by Richard Leong in New York and Doug Palmer in Washington; Editing by Padraic Cassidy)

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