U.S. consumer spending rose more than expected in October, while new applications for jobless aid last week fell to their lowest level in more than a year, suggesting the economic recovery is gaining traction.

An unexpected decline in orders for long-lasting U.S. manufactured goods tempered some of the optimism and was a reminder that recovery from the worst recession in 70 years would be gradual.

The Commerce Department said on Wednesday consumer spending increased 0.7 percent last month after falling 0.6 percent in September. That was above market expectations for a gain of 0.5 percent.

A separate report from the Labor Department showed initial claims for state unemployment benefits slid to 466,000 last week from 501,000 the prior week in the fourth straight week of declines. The figure was well below market expectations for 500,000.

Certainly everybody is looking for the consumer to begin step up here a little bit in the economy, so this is positive data, said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills in New York.

U.S. stock index futures added to gains on the jobless claims data, which was viewed as a sign that the battered labor market was gradually healing. Prices of U.S. government bond extended losses.

There are fears that consumer spending, which normally accounts for over two-thirds of U.S. economic activity, may slow in the fourth quarter because of high unemployment and hold back economic growth.

The jobless claims are still above the 400,000 level that analysts say would signal growth in payrolls.

The four-week moving average for new jobless claims, which is considered a better gauge of underlying trends because it smooths out weekly swings, fell 16,500 to 496,500 in the latest week. It was the lowest level since November 2008 and the 12th straight weekly decline.

For a graphic on jobless claims, click on http://link.reuters.com/pyg63g

A government report on Tuesday showed spending increased at a 2.9 percent annual rate in the July-September period, slower than the previously estimated 3.4 percent pace.

That resulted in the government paring back its third-quarter gross domestic product growth estimate to a 2.8 percent pace from 3.5 percent.

The Commerce report also showed personal income increased 0.2 percent in October after a similar advance the previous month. That was above market expectations for a 0.1 percent gain.

Savings fell to an annual rate of $490.3 billion, pushing down the saving rate to 4.4 percent from 4.6 percent in September.

In another report, the Commerce Department said orders for durable goods, which include products such as refrigerators and computers, dropped 0.6 percent after rising 2.0 percent in September. Analysts polled by Reuters had forecast orders rising 0.5 percent in October.

Durable goods orders are a leading indicator of manufacturing activity.

It does appear that momentum in manufacturing is weakening as we move into the end of the year. The manufacturing sector bears close watching since it is considered a forward indicator for the economy, said Kenneth Kim, economist at Stone & McCarthy Research Associates in Princeton, New Jersey.

New durable goods orders excluding transportation declined 1.3 percent last month after rising 1.8 percent in September.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, fell 2.9 percent last month after rising by a hefty 2.6 percent in September.

(Reporting by Lucia Mutikani and Mark Felsenthal; Editing by Leslie Adler)