By Lucia Mutikani

WASHINGTON (Reuters) - U.S. factory output rose by the most in more than 74 years in June as motor vehicle production accelerated amid the reopening of businesses, but the nascent economic recovery was overshadowed by surging new COVID-19 infections.

That was underscored by another report from the Federal Reserve on Wednesday showing a pickup in activity through early July, though the outlook remained highly uncertain and depended on the duration of the pandemic and its impact on the economy.

Businesses have resumed operations after being shuttered in mid-March in an effort to slow the spread of the coronavirus. But there has been a resurgence in new infections of the respiratory illness, especially in the highly populated South and West, prompting some authorities in these regions to either shut down businesses again or pause reopenings. The economy slipped into recession in February.

"The manufacturing recovery will proceed at a much slower pace compared to the initial, partial snap-back phase," said Oren Klachkin, lead U.S. economist at Oxford Economics in New York. "The renewed flaring of virus-related uncertainty will add to significant downside risks from sharply curtailed demand, supply chain disruptions and heightened economic uncertainty."

The Fed said manufacturing production jumped 7.2% last month, the largest gain since March 1947, after climbing 3.8% in May. Despite two straight monthly increases, factory output was 11.1% below its level in February. Economists polled by Reuters had forecast manufacturing output rising 5.6% in June.

Production at factories contracted at a 47.0% annualized rate in the second quarter after falling at a 5.5% pace in the January-March period. Manufacturing, which accounts for 11% of the U.S. economy, is also being constrained by the fallout from the Trump administration's trade war with China.

Global supply chains remain fragile and demand for crude oil is weak, leading to lower prices that are undercutting spending by oil producers on drilling and shaft exploration equipment.

Economists expect business spending to have contracted in the second quarter, the fifth straight quarterly decline. They believe gross domestic product dropped at its steepest pace in the second quarter since the Great Depression.

Separately, the Fed said in its Beige Book report of anecdotal information on business activity collected from contacts nationwide, economic activity increased in almost all districts through early July.

But the U.S. central bank noted "outlooks remained highly uncertain, as contacts grappled with how long the COVID-19 pandemic would continue and the magnitude of its economic implications."