(REUTERS) Stocks edged higher on Thursday, putting the benchmark S&P 500 index on track for its third straight advance after data pointed to ongoing labor market improvement, albeit at a slow pace.

New jobless claims hit a 3-1/2 year low last week, bolstering the view the economy was gaining momentum. The stagnant labor market has been a major worry and recent signs of life have helped lift stock prices.

Jobless claims continues to trend down, said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois. I don't think we have touched this level in quite a while.

Gains were slight in what will likely be another light-volume session heading into the holiday season. Still, Wall Street added to gains of nearly 3 percent on Tuesday, with many traders betting on a rally into the end of the year. The S&P edged up Wednesday.

Also helping equities, U.S. consumer sentiment improved in December to its highest level in six months as Americans felt better about the economy's prospects for the year ahead.

The Dow Jones industrial average <.DJI> gained 39.25 points, or 0.32 percent, to 12,146.99. The Standard & Poor's 500 Index <.SPX> rose 6.81 points, or 0.55 percent, to 1,250.53. The Nasdaq Composite Index <.IXIC> was up 15.49 points, or 0.60 percent, to 2,593.46.

The labor market and confidence data overshadowed a revision

from the Commerce Department showing the U.S. economy grew less than expected in the third quarter.

Clearly the year has ramped nicely, based on an improving economic picture, said Phil Orlando, chief equity market strategist at Federated Investors in New York.

Orlando said increased inventory liquidation in the gross domestic product report showed end-of-market demand remained strong in the fourth quarter.

The double-dip fear the bears were talking about in the second half of the year is off the table at this point and investors are seeing domestic fundamentals are in pretty good shape, Orlando said.

Recent gains have lifted the S&P 500 above its 50-day moving average, but the index has run into trouble when it sought to move above its 200-day moving average, currently around 1,260. The level has been key for the market this year.

Lower volume, as the Christmas and New Year's Day holidays draw closer, was leaving the market susceptible to the heightened volatility this week.

Yahoo Inc advanced 1.6 percent to $16.24 after sources said the Internet media group may unload stakes in its prized Asian assets as part of a complicated share transaction.

Tibco Software Inc climbed 8.6 percent to $23.89 after the business software maker forecast first-quarter revenue above estimates and said quarterly profit and revenues soared.

American Greetings Corp slumped 22.5 percent to $13.16 after third-quarter profit dropped nearly 40 percent and it said 2012 cash flow would be hurt by higher expenses.

(Reporting By Edward Krudy; editing by Jeffrey Benkoe)