Short-term corporate lending in the commercial paper market grew substantially last week, the fifth consecutive week of growth, according to data released by the Federal Reserve on Thursday. The rise suggests the U.S. economy is on firmer footing.

Companies tap the commercial paper market for short-term debt -- 270 days or less -- to fund rent and payroll, so growth shows business is picking up.

"When things go better than planned, there's financing to be done," said Deborah Cunningham, chief investment officer at Federated Investors in Pittsburgh. "We expect this trend of growth to continue for the rest of this year. We certainly don't expect any double-dip at this point."

In the week ended Wednesday, the commercial paper market grew by $32.2 billion on an unadjusted basis, according to the Fed. The market shrank by $3.3 billion on a seasonally-adjusted basis, but industry participants prefer to use the unadjusted numbers.

"Issuers are seeing strong demand for their CP and are comfortable with market conditions, so they are continuing to issue," said Chris Conetta, head of global commercial paper trading at Barclays Capital in New York. "Meanwhile, investors have plenty of cash to spend so they are buying substantial amounts of this CP."

That said, the volume of commercial paper issued usually increases in January as companies tap the market to build a cushion for the new fiscal year.

"The uptick in commercial paper at the beginning of the year is fairly typical, but we are pleasantly surprised by the magnitude," said Conetta.

Outstanding asset-backed commercial paper added $5.1 billion on an unadjusted basis though it fell by $600 million last week on a seasonally adjusted basis.

Aside from a strengthening economy boosting the commercial paper market, other factors like the creation of some new commercial paper conduits could have led to the increase this week, one market participant said.

Also, technical factors like advantageous exchange rates have led to an increase.

"There is a favorable dynamic in the foreign exchange market right now that makes it attractive for issuers who need to raise euros to issue in dollars and swap the proceeds back into euros," Conetta said.

The total outstanding stands at $966 billion on an adjusted basis and $1.083 trillion on an unadjusted basis. This is about half what the market was at its peak in July of 2007.

-By Anusha Shrivastava, Dow Jones Newswires; 212-416-2227; anusha.shrivastava@dowjones.com