WRAPUP 5-US jobless claims, factory data buoy recovery hopes

* Initial claims for jobless aid drop 34,000 last week

* Claims, four-week average lowest in more than two years

* Chicago ISM rises to 68.6 in Dec, highest since 1988

* Pending home sales rise 3.5 percent in November
(Updates markets to afternoon)

By Lucia Mutikani

WASHINGTON, Dec 30 (BestGrowthStock) – Upbeat U.S. data on the jobs
market and manufacturing sector on Thursday buttressed the view
the economy gained momentum as the year ended, setting the
stage for a stronger performance in 2011.

New applications for unemployment benefits dropped 34,000
last week to 388,000, the lowest level since July 2008, while
factory activity in the Midwest expanded in December at its
fastest pace in more than 22 years.

Further brightening the picture, pending sales of
previously owned homes rose more than expected in November.

The data was the latest in a series, ranging from retail
sales to trade, to suggest the recovery has picked up steam.

“The economy is heading into 2011 with some pretty good
momentum and some pretty good wind behind its sails right now,”
said Omair Sharif, an economist at RBS Securities in Stamford,
Connecticut.

The reports had a minimal impact on U.S. financial markets,
where volumes were light and investors moved to the sidelines
as the year wound down.

Prices for U.S. government debt were mostly marginally
down, while the dollar rebounded from a seven-week low against
the yen. U.S. stock indexes were flat to slightly lower.

Economists, who had expected initial claims for jobless
benefits to dip only to 415,000, said the Christmas
holiday-shortened week may have led to data distortions.

However, analysts said that did not change the view that
the labor market was gaining strength. A four-week average of
new claims — a better measure of underlying trends — also
touched its lowest lowest level since July 2008.

“There’s no denying that the economy is improving,” said
Wayne Kaufman, chief market analyst at John Thomas Financial in
New York.

BULLISH SIGNAL FROM MANUFACTURING

The Institute for Supply Management-Chicago’s business
barometer for the Midwest provided an even more bullish
signal.

It jumped to 68.6, the highest since July 1988, from 62.5
in November. Economists had expected it to dip. Any reading
above 50 indicates the region’s economy is expanding.

The gauge, which closely correlates to the Institute for
Supply Management’s report on national manufacturing due on
Monday, mirrored strong gains in measures of factory activity
in other regional surveys reported last week.

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

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

An employment gauge in the Chicago factory report rose to
60.2 — the highest level in more than five years — from 56.3
in November.

That jump and the steady decline in jobless claims in
recent weeks suggests the pace of job creation picked up this
month after a dismal November in which employers added only
39,000 workers to their payrolls.

The December employment data is due on Jan. 7, and a
preliminary Reuters survey shows economists expect nonfarm
payrolls increased 126,000.

However, that is still not enough to significantly reduce
the unemployment rate, which is expected to edge down to 9.7
percent from 9.8 percent in November.

“The downward trend in initial jobless claims has become
more pronounced after stalling over the summer and should be an
indication that hiring is accelerating,” said Ellen Beeson
Zentner, a senior U.S. economist at the Bank of
Tokyo-Mitsubishi UFJ in New York.

“However, the average level of claims suggests job creation
of no more than 150,000 a month. To accelerate beyond that
we’ve got to see the four-week average move convincingly below
400,000.”

The report on jobless claims showed the number of people
still receiving benefits under regular state programs after an
initial week of aid rose 57,000 to 4.13 million in the week
ended Dec. 18. This data covered the survey week for the
government survey from which the unemployment rate is derived.

The jobless rate is likely to remain elevated as an
improving labor market lures discouraged job seekers back into
the labor force.
(Additional reporting by Ryan Vlastelica, Chris Reese in New
York; Editing by Chizu Nomiyama)

WRAPUP 5-US jobless claims, factory data buoy recovery hopes