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.

Ten districts said activity was picking up while the Philadelphia and Richmond Fed banks reported mixed conditions.

The Fed's findings 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.

WON'T AFFECT POLICY

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.

The Fed has slashed rates to near zero and pumped over $1 trillion into the financial system to prevent a banking failure and pull the economy out of the worst recession in decades.

It has pledged to hold rates ultra-low to nurture what appears to be a fragile recovery and comments from a senior policymaker on Wednesday reinforced the view that policy will be in place for some time.

I think that we are going to be waiting for the economy to improve in a strongly sustainable fashion and until that happens then it's unlikely that we would be changing policy, Chicago Fed bank President Charles Evans told reporters after speaking to a business group in Coralville, Iowa.

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.

(additional reporting by Ann Saphir in Coralville, Iowa)

(Reporting by Glenn Somerville; Editing by Diane Craft)