The Federal Reserve said on Wednesday the economy continued to expand modestly through the end of 2011 as holiday spending proved robust, but a weak job market was still preventing incomes from rising.

In its Beige Book report of anecdotal information on business activity collected from contacts around the country, the central bank said the outlook was one of steady if slow improvement.

Reports on consumer spending were favorable in general, the report said. Consumer spending and confidence generally were characterized as firmer than in recent reporting periods.

The evidence also suggests inflation is not a major concern, with many districts reporting that upward pressures on prices from high commodity prices had eased significantly.

The combination of limited permanent hiring in most sectors and numerous active job seekers has continued to keep a lid on general wage increases, the Beige Book report said.

The Fed depicted activity in the residential real estate market as sluggish, but added that commercial property markets had been showing some signs of life.

The central bank will meet on January 24-25 to set monetary policy, and is expected to unveil a new framework of communications that will include increased clarity on policymakers' expectations for the path of interest rates.

Analysts said that while the improved tone of the Beige Book report is likely to be reflected in the January policy statement, it will not yet settle the debate over whether another round of stimulus is needed.

With economic growth continuing to be sub-par and the pace of slack absorption in the economy remaining slow, it will do little to shift the current accommodative monetary policy stance and is unlikely to temper the agitation for more stimulus from the doves on the Committee, said Millan Mulraine, senior U.S. macro strategist at TD Securities in Toronto.

(Additional reporting by Mark Felsenthal; Editing by Chizu Nomiyama)