Jobless and factory data suggest gain

New US claims for jobless aid hit their lowest level in more than two years last week and factory activity in the Midwest grew in December at its fastest pace since 1988, evidence the recovery was gaining steam.

The view that economic activity accelerated in the fourth quarter was hardened by another report yesterday showing pending sales of previously owned homes rose more than expected in November, even though the housing market remains in distress.

Initial claims for state unemployment benefits fell 34,000 to a seasonally adjusted 388,000, the lowest reading since early July 2008, the Labor Department said. That was well below economists' expectations of 415,000.

Separately, the Institute for Supply Management-Chicago's business barometer jumped to 68.6 from 62.5 in November, beating economists' expectations for a dip to 61.0. A reading above 50 indicates expansion in the regional economy.

Although analysts said the data could have been distorted by the Christmas holiday season, the reports still backed perceptions the recovery from the worst recession since the 1930s was gaining traction after a pause earlier in the year.

"There's a certain seasonal bias in some of these things . . . but there's no denying that the economy is improving," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York.

Signs the economy was improving helped to push prices for US government debt lower, while the dollar rose to a session high against the yen. Stocks on Wall Street were little changed.

In a third report, the National Association of Realtors said its pending home sales index based on signed contracts to buy previously owned houses rose 3.5 percent last month to 92.2. The second straight month of gains beat market expectations for a 2 percent increase.

Analysts have forecast growth at an annual pace of between 3 and 3.5 percent in the current quarter after a 2.6 percent expansion rate in the third quarter, and there is optimism that this would spur hiring.

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