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The picture also was brightened by news retailers saw stronger-than-expected sales for November as shoppers flocked to stores and spent more during the annual discount bonanza known as Black Friday.

The reports were the latest to suggest a pick-up in activity in the fourth quarter.

"There seems to be no doubt that the economy is improving and likely to continue to improve," said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

Initial claims for state unemployment aid increased 26,000 to a seasonally adjusted 436,000 last week, the Labor Department said. But a four-week moving average -- a better gauge of underlying labor trends -- fell to its lowest level since the week ending Aug 2, 2008.

While claims bounced off the prior week's two-year low, they stayed in a range viewed by economists as indicating some strength in the labor market. Economists had forecast claims rising to 425,000.

The claims data has little bearing on Friday's employment report for November as it falls outside the survey period.

Anecdotal evidence points to a firming labor market and the government is expected to report that nonfarm payrolls rose 140,000 last month after increasing 151,000 in October.

JOB LOSSES EASING

"The core story here is that firmer demand and easing credit conditions for smaller firms are allowing them to hang on to people who might otherwise have been let go," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

In a second report, the National Association of Realtors said its Pending Home Sales Index, based on contracts signed in October, jumped 10.4 percent to 89.3. Economists had expected a decline of 0.5 percent.

The data and a decision by European officials to extend a liquidity safety net for vulnerable banks buoyed stocks on Wall Street. The dollar fell against the euro and the yen, while prices for U.S. government debt were little changed.

Europe's sovereign debt crisis early this year helped to slow the U.S. economy's recovery from its worst recession since the Great Depression of the 1930s.

Analysts believe the Federal Reserve's decision to loosen monetary policy further through additional purchases of $600 billion worth of government debt should help shield the domestic economy from much of the turbulence from Europe.

Despite signs of improvement, strains remain in the labor market. The number of people still receiving benefits under regular state programs after an initial week of aid rose 53,000 to 4.27 million in the week ended November 20, above expectations for 4.21 million.