The mostly upbeat survey offered a hopeful sign after last week's more dismal data on hiring and manufacturing. Those reports sketched a picture of an economy that is slumping after a promising winter.
The positive survey, which is anecdotal, also makes it less likely that Fed policymakers will take further action in the coming months to lift the economy. The survey doesn't suggest the economy is in dire need of help, many economists said.
"This report was more upbeat than probably anyone expected," said Jennifer Lee, an economist at BMO Capital Markets. That suggests that "some of the soft reports on payrolls, auto sales, and manufacturing may be temporary."
The Fed survey shows growth in each of its 12 bank districts from April 3 through May 25. Growth picked up in 10 districts. It was steady in the Boston district and slowed in the Philadelphia region.
Hiring was steady or rose modestly, according to the Fed's report, known as the "Beige Book." That's in stark contrast to the government's jobs report last week, which said employers added the fewest jobs in a year in May and the unemployment rate ticked up to 8.2 percent from 8.1 percent in April.
"We are encouraged by the overall tone ... because it suggests that business contacts are not experiencing a sharp drop-off in activity amid the heightened economic uncertainty of late," Joseph LaVorgna, an economist at Deutsche Bank, said in a note to clients.
Fed Chairman Ben Bernanke is expected to update his views on the economy and the Fed's policies during a Congressional hearing Thursday.
It was the second positive reading on the economy this week. On Tuesday, a private survey found that the service sector expanded at a slightly faster pace than the previous month. The industries surveyed cover about 90 percent of the economy and include health care, retail, construction and financial services.
The Dow Jones industrial average was up more than 270 points in afternoon trading, extending its first two-day winning streak since late April. The last time the Dow gained more than 200 points was March 13.
Broader indexes also rose sharply.
The survey was mostly positive. Manufacturing and home sales improved in most districts, as did residential and commercial construction. Auto sales were strong in most areas. And businesses sought more loans, which could signal expansion plans. Small and medium-sized banks in the New York district reported the most broad-based increase in loan demand since the mid-1990s.
But the survey also pointed to some weakness in the economy. Consumer spending was flat or increased only slightly in almost all districts. That could restrain growth because consumer spending drives 70 percent of economic activity.
Americans received little in the way of pay raises. Weak wage growth could also dampen consumer spending in the coming months.
Manufacturing firms in many districts said Europe's financial crisis and uncertainty over future U.S. tax and budget policies could weigh on upcoming business decisions.
Still, gas prices have dropped sharply since peaking on April 6. That could allow consumers and businesses latitude to spend more freely.
The Beige Book is released eight times a year and is based on surveys by the Fed's 12 regional banks. There are no numbers in the report. But its findings, which are released two weeks before the Fed's policy meeting, help influence the discussions.
Those discussions may be especially contentious when the Fed's board meets June 19-20. Last week's disappointing jobs report has heightened pressure on the central bank to take steps to accelerate growth and hiring.
Some Fed policymakers, who believe inflation is largely in check, may favor new stimulus measures. But other Fed officials fear that low interest rates and the central bank's previous bond-buying programs could soon push up inflation. They will likely resist any new steps.
Fed policy makers slightly upgraded their forecasts in April. They projected growth at about 2.7 percent this year, up from 2.5 percent in January. They also nudged down their unemployment rate forecasts.
Wall Street economists, however, have since moved in the other direction. Many now expect the economy to expand by only about 2 percent this year, down from earlier estimates of 2.5 percent.
In addition to the slowdown in hiring in May and April, reports last week showed that manufacturing activity grew more slowly last month, consumer confidence tumbled and a gauge of future home sales fell.
And the government said the economy expanded at a tepid 1.9 percent annual rate in the first three months of 2012. That's down from 3 percent in the fourth quarter.
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