WASHINGTON (Reuters) - U.S. home resales rose to a 10-month high in July and the number of Americans filing new claims for unemployment benefits fell last week, signaling strength in the economy early in the third quarter.

A home for sale sign hangs in front of a house in Oakton, on the day the National Association of Realtors issues its Pending Home Sales for February report, in Virginia March 27, 2014. REUTERS/Larry Downing

The growth outlook was further buoyed by other reports on Thursday showing factory activity in the mid-Atlantic region hit its highest level since March 2011 in August while a gauge of future economic activity increased solidly last month.

The National Association of Realtors said existing home sales increased 2.4 percent to an annual rate of 5.15 million units. That was the highest reading since last September and confounded economists’ expectations for a pullback.

Home resales have now increased for four straight months after the housing market recovery stalled in the second half of 2013 following a run-up in mortgage rates.

“It goes some way in allaying fears about a relapse in the housing sector recovery, which until recently appears to have stagnated,” said Millan Mulraine, deputy chief economist at TD Securities in New York.

In a separate report, the Labor Department said initial claims for state unemployment benefits fell 14,000 to a seasonally adjusted 298,000 for the week ended Aug. 16. That pointed to a sustained improvement in labor market conditions.

The four-week average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 4,750 to 300,750. But at that level it is consistent with solid job growth and claims are back to pre-recession levels.

U.S. stocks were trading higher, with the S&P 500 index .SPX hitting an intraday record. The housing index .HGX was up 0.27 percent, with Pulte Group PHM.N gaining 0.26 percent.

The dollar was little changed against a basket of currencies .DXY while prices for U.S. Treasury debt US10YT=RR rose marginally.

FIRMING LABOR MARKET

The jobless claims report covered the period during which the government surveyed employers for August’s nonfarm payrolls data. The four-week average of claims fell 8,500 between the July and August survey periods, suggesting another month of relatively strong job gains.

Nonfarm payrolls increased by 209,000 in July, marking the sixth consecutive month that job growth topped 200,000, a sign of strength last seen in 1997. The firming jobs picture appears to have caught policymakers by surprise.

Minutes of the Federal Reserve’s July 29–30 policy meeting published on Wednesday showed officials viewing the improvement in labor market conditions as “greater than anticipated” and hinted that that could lead to an early interest rate increase.

The U.S. central bank had previously termed labor market slack “significant” but the minutes showed many policymakers thought this characterization “might have to change before long.”

The Fed has held its benchmark interest rate near zero since December 2008. The economy grew at a 4 percent annual rate in the second quarter. Growth estimates for the third quarter are currently around a 3 percent pace.

In a third report, financial data firm Markit said its preliminary or ‘flash’ U.S. Manufacturing Purchasing Managers Index rose to 58 this month, the highest since April 2010, from 55.8 in July.

That show of strength was corroborated by a separate report from the Philadelphia Federal Reserve Bank, which showed its business activity index increased to 28.0 this month, the highest since March 2011, from 23.9 in July. Any reading above zero indicates expansion in the region’s manufacturing.

“Overall, today’s Philly Fed and Markit manufacturing surveys indicate continued healthy growth in the manufacturing sector in August,” said Dean Maki, chief U.S. economist at Barclays in New York.

A fifth report from the Conference Board showed its Leading Economic Index increased 0.9 percent last month after advancing 0.6 percent in June.