Factory activity in the U.S. mid-Atlantic region expanded more than expected in February, with a closely watched business index from the Philadelphia Federal Reserve notching its highest level in three years.

The Philly Fed said its business activity index rose to 36.7 in February, its highest since February 2017, from 17.0 the month before. The reading was well above economists' expectations of 12.0, according to a Reuters poll.

Any reading above zero indicates expansion in the region's manufacturing. The survey covers factories in eastern Pennsylvania, southern New Jersey and Delaware.

It is seen as one of the first monthly indicators of the health of U.S. manufacturing, leading up to the national report by the Institute for Supply Management.

The new orders component climbed to 33.6 in February from a month earlier reading of 18.2, while the prices paid subindex declined to 16.4 from 22.1 a month before.

The employment subindex fell to 9.8 from 19.3 a month earlier. (Reporting by Dan Burns Editing by Chizu Nomiyama)