WASHINGTON (Reuters) A closely watched gauge of US jobless benefits touched a fresh two-year low last week and pending sales of previously owned homes unexpectedly surged in October, signs the economy had broken out of its summer soft patch.

Initial claims for state unemployment benefits increased 26,000 to a seasonally adjusted 436,000, the Labour Department said yesterday. However, a four-week moving average a better gauge of underlying labour trends fell to its lowest level since the week ending August 2, 2008.

Economists had forecast claims rising to 425,000. Although claims bounced off recent two-year lows last week, they remained firmly in ranges considered by economists as consistent with an improving labour market.

“If it continues, we should expect to see better payroll numbers over the next few months,” said Ian Shepherdson, chief US economist at High Frequency Economics in Valhalla, New York. “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.”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.

US stocks rose as investors cheered the unexpected rise in pending home sales. Treasury debt prices fell, with the benchmark 10-year notes yield rising more than three percent for the first time since July.

The claims data have little bearing on today’s employment report for November as it falls outside the survey period.

“Taken together, today’s number is a reminder that even in a labor market that is gradually healing, the improvement won’t happen in a straight line,” said Michael Feroli, an economist at JP Morgan in New York.

Anecdotal evidence points to a strengthening in the labour market and the government is expected to report that nonfarm payrolls rose 140,000 last month after increasing 151,000 in October. Other data also continue to indicate a pick-up in economic activity during the fourth quarter.

US retailers reported stronger-than-expected sales for November as shoppers flocked to stores and spent more during the annual discount bonanza known as Black Friday, reports showed on Thursday. Despite signs of improvement, strains remain in the labor market. The number of people still receiving benefits under regular state programmes 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.

The number of people on emergency unemployment benefits increased 142,874 to 3.94 million in the week ended November 13, the latest week for which data is available.