U.S. economic activity remained at a low level as 2010 began but was improving modestly and beginning to broaden out to include wider swaths of the country, the Federal Reserve said on Wednesday.

Reports from the 12 Federal Reserve districts indicated that while economic activity remains at a low level, conditions have improved modestly further, and those improvements are broader geographically than in the last report, according to the periodic Beige Book report compiled this time by the Philadelphia regional Fed bank.

The Fed's conclusions were based on results of a survey taken on or before January 4. It said shoppers in the 2009 holiday season spent slightly more freely than in 2008 but at a rate still far below 2007 levels, when the economy was just on the verge of slipping into a serious financial crisis.

Job markets were still soft in most of the country, though the New York Fed reported a modest pickup in hiring and several service-sector firms in the St. Louis Fed region planned to take on more employees.

Wage rises and price pressures were subdued.

The Beige Book report, so called because of the color of its cover, will be used by U.S. central bank policymakers when the Federal Open Market Committee meets on January 26-27 to decide whether to adjust policy.

Financial markets took the latest indication of modestly improving conditions positively, with stock prices adding to earlier gains after the report was issued in early afternoon.

It said home sales began increasing in most parts of the country as 2009 ended, especially for lower-priced homes. The extension of a federal tax credit for first-time homebuyers helped spur sales, according to realtors.

There were still plenty of signs of economic trouble.

The Fed said demand for loans continued to decline or weakened further in much of the country. As well, credit quality was still deteriorating and financial institutions in many districts including new York, Philadelphia and Cleveland said loan delinquencies were rising.

Commercial real estate conditions were still soft in most of the country. New York, Philadelphia, Kansas City and San Francisco all said that demand for commercial and industrial space was still losing momentum.

(Reporting by Glenn Somerville; Editing by Andrew Hay)