WASHINGTON, March 2 (Reuters) - U.S. manufacturing activity expanded steadily in February, but a measure of prices paid by factories for inputs rose to the highest level in nearly 3-1/2 years, highlighting upside risks to inflation amid import tariffs even before a U.S.-led attack on Iran sent oil prices higher.

The Institute for Supply Management said on Monday its manufacturing PMI was little changed at 52.4 last month compared to a reading of 52.6 in January. It was the second straight month that the PMI was above the 50 level, which indicates expansion. Economists polled by Reuters had forecast the PMI falling to 51.8.

The United States and Israel launched their most ambitious attacks on Iran in decades on Saturday, killing Supreme Leader Ayatollah Ali Khamenei. Oil and natural gas prices surged on Monday as the strikes and retaliation by Tehran forced shutdowns of oil and gas facilities across the Middle East and disrupted shipping in the crucial Strait of Hormuz.

The rebound in factory activity in January after 10 consecutive months in contraction territory had been attributed to reordering after the holiday season as well as what the ISM described as buying "to get ahead of expected price increases due to ongoing tariff issues." 

President Donald Trump's broad tariffs have constrained manufacturing, which accounts for 10.1% of the economy. 

The U.S. Supreme Court last month struck down the tariffs that Trump had pursued under a law meant for use in national emergencies. However, Trump swiftly imposed a 10% global tariff for 150 days to replace some of the emergency duties and then announced it would rise to 15%. 

Amid the tariff gloom, the technology parts of manufacturing have received a boost from the accelerated adoption of artificial intelligence and construction of data centers. 

The sector has yet to experience the rebirth that Trump envisioned with his import duties. Manufacturing employment has declined by 83,000 jobs since January 2025. 

Economists expect tax legislation, which made bonus depreciation permanent among other perks, to support manufacturing this year.

The ISM survey's forward-looking new orders sub-index slipped to 55.8 last month after surging to 57.1 in January, which was the highest level since February 2022. But backlog orders increased and exports were steady.

Supplier delivery performance continued to deteriorate. The survey's supplier deliveries index rose to 55.1 from 54.4 in the prior month. A reading above 50 indicates slower deliveries.

With deliveries taking longer, manufacturers faced higher prices for inputs. The survey's prices paid measure soared to 70.5, the highest level since October 2022, from 59.0 in January.

The index also outstripped forecasts for an increase to 60.0. The rise mirrored a surge in producer goods prices, excluding food and energy, in January and suggested more pass-through from tariffs was coming.

Factory employment remained subdued. The survey's measure of manufacturing employment edged up to 48.8 from 48.1 in January. The ISM has noted that manufacturers were using layoffs and not filling open positions to manage headcount.