Pending sales of previously owned U.S. homes rebounded unexpectedly in July and new claims for jobless benefits fell last week, hopeful signs for the sputtering economic recovery.

The data on Thursday, including sturdy retailers sales last month, followed a report on Wednesday showing surprising strength in the manufacturing sector and suggested that investors' fears of a double-dip recession may have been over done.

These are further signs the economy is not slipping into a recession albeit growth still looks quite slow, Zach Pandl, an economist at Nomura Securities International in New York.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in July, increased 5.2 percent to 79.4 from June. Financial markets had expected the index, which leads existing home sales by a month or two, falling 1.0 percent.

Home sales have fallen sharply following the end in April of a popular tax credit for home buyers and the surprise gain in July raised hope the decline was close to a bottom.

A report from the Labor Department showed initial claims for state unemployment benefits dropped for a second straight week, slipping 6,000 to 472,000, below market expectations for 475,000.

Stocks on Wall Street rose on the data, building on a big jump on Wednesday. U.S. government debt yields rose and the dollar was slightly weaker against major currencies.

Sentiment was also lifted as U.S. retailers posted better-than-expected sales in August as consumers sought out bargains during the key back-to-school selling season.


While new jobless claims declined last week, they are still high for this stage in the economic recovery, after edging up to a nine month high last week, following some improvement in the past year.

We're still uncomfortably high, given where we are at this juncture of the recovery, but that we're moving toward 400,000 rather than 500,000 is indicative of at least some measure of job creation, said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

But this week's jobless claims data has little impact on Friday's closely watched employment report for August as it falls outside the survey period.

The government is expected to report on Friday that nonfarm payrolls dropped 100,000 in August, the third straight month of job declines, with private sector employment increasing only 41,000, according to a Reuters survey.

The weak labor market threatens to derail the U.S. economy's recovery from the most painful recession since the Great Depression. Growth is losing steam as the boost from a $814 billion government stimulus package and the rebuilding of inventories by businesses fade.

The Fed has acknowledged the slowing recovery pace but the minutes of the U.S. central bank's last policy meeting released this week showed the economy's outlook would have to deteriorate appreciably to spur fresh support from the Fed.

Growing unease over the health of the economy is weighing on President Barack Obama's popularity and dimming the Democratic Party's prospects of keeping control of Congress in November's mid-term elections.

The economy grew at a 1.6 percent annualized rate in the second quarter, slowing markedly from a 3.7 percent pace in the January-March period.


The lackluster economic recovery was also underscored by a second report from the Labor Department, which showed productivity contracted at an annual rate of 1.8 percent, instead of the previously reported 0.9 percent pace. That was the largest decline since third quarter of 2006.

Analysts had expected productivity, a measure of hourly output per worker that is taken as an indicator of the economy's vitality or lack of it, to drop at a 1.9 percent pace in the April-June period after increasing at a 3.9 percent rate the first quarter.

We doubt that productivity growth will rebound significantly, this is consistent with unit labor costs gradually picking up, a negative for corporate profits but a signal that the economy is moving away from a disinflationary phase, said Peter Newland, an economist at Barclays Capital in New York.

Unit labor costs, a gauge of potential inflation pressures closely watched by the Federal Reserve, rose at a 1.1 percent rate rather than the previously estimated 0.2 percent. The increase in unit labor costs was the fastest rate since the fourth quarter of 2008. Unit labor costs fell at 4.6 percent rate in the first three months this year.

Other data on Thursday showed new orders received by U.S. factories edged 0.1 percent to a seasonally adjusted $409.5 billion after falling 0.6 percent in June.

(Additional reporting by Glenn Somerville)