Half of the Federal Reserve's 12 districts saw evidence the U.S. economy had improved by the end of August, although labor markets remained weak and retail sales were flat, a Fed report said on Wednesday.

Dallas, Boston, Cleveland, Philadelphia, Richmond and San Francisco noted gains. Other areas reported the economy was stable or showing signs of stabilization while St. Louis said the pace of economic decline appeared to be moderating.

Most districts noted that the outlook for economic activity among their business contacts remained cautiously positive, the Fed's Beige Book survey said.

The modestly upbeat report said most regions reported some improvement in hard-hit residential real estate markets and an uptick in manufacturing.

Certainly the economy is very much in a bottoming process but is not off to the races by any means, said Dan Peirce, portfolio manager in the global asset allocation team with State Street Global Advisors in Boston.

Despite improvements in housing markets, most districts reported downward pressure on house prices, the Fed said.

Tempering the brighter spots, Fed contacts reported that demand for commercial property remained weak and that businesspeople in some areas believed recently higher vehicle sales levels were likely not sustainable after the government's cash for clunkers incentive program lapses.

Overall consumer sales were flat, the Fed said.

Also, loan demand was weak and credit standards remained tight, the Fed said.

But even some of the gloomiest segments of the economy held glimmers of hope, said the survey by the Fed, the U.S. central bank.

Labor market conditions remained weak across all districts, but several also noted an uptick in temporary hiring and a decline in the pace of layoffs, the report said.

Wage pressures were low, the Fed said.

The Fed at its last policy-setting meeting held its benchmark short-term interest rate steady near zero and said it would likely hold it there for an extended period to guide the way to recovery.

Fed officials have said recently they expect a sluggish recovery with persistently high unemployment. The U.S. jobless rate hit a 26-year high of 9.7 percent in August.

The central bank's next policy-setting meeting is September 22-23.

(Additional reporting by John Parry in New York)

(Reporting by Mark Felsenthal and Alister Bull; Editing by James Dalgleish)