June 21 (Bloomberg) -- A gauge of leading U.S. economic indicators strengthened more than forecast last month as stock prices jumped and fewer workers applied for unemployment benefits, a private report showed.

The Conference Board's index of leading economic indicators increased 0.3 percent after a 0.3 percent drop in April. The New York-based group's gauge points to the direction of the economy over the next three to six months.

The rise adds to evidence that the economy is recovering after growing last quarter at the slowest pace in more than four years. Economists have been raising growth forecasts on signs of stronger business investment and a resilient labor market that's helping consumers deal with higher fuel costs.

``The winter blahs for the economy seem to have receded,'' said Neal Soss, chief economist with Credit Suisse Group in New York, who correctly forecast the rise. ``One of the most reassuring features of the economy has been job growth, and we expect that to persist.''

Economists projected the index would rise 0.2 percent after an initially reported 0.5 percent decline in April, according to the median of 58 estimates in a Bloomberg News survey. Forecasts ranged from a drop of 0.1 percent to an increase of 0.5 percent.

Five of the 10 indicators in today's report had a positive effect on the index, led by the drop in jobless claims and the rise in stock prices.

Jobless Claims

Claims for jobless benefits added 0.21 percentage point to the leading indicators index. They averaged 304,000 last month, down from 318,000 in April.

The Labor Department reported earlier today that initial jobless claims unexpectedly rose last week to 324,000 from 314,000.

The rise in the Standard & Poor's 500 index added 0.12 percentage point. The S&P index rose 3.3 percent in May on its way to a record this month.

Among other indicators having a positive effect, building permits added 0.08 percentage point. Permits rose to an annual rate of 1.501 million in May, after falling to the lowest level in almost a decade in April. Monthly permits have averaged 1.527 million at an annual rate so far this year.

Consumer Expectations

Consumer expectations added 0.05 percentage point. Gains in jobs and stocks lifted the Reuters/University of Michigan index of consumer sentiment last month. Retail sales last month rose by the most in more than a year, according to a government report on June 13.

The economy grew at an annual rate of 0.6 percent in the first quarter, the slowest since the final three months of 2002. The slowdown may be short-lived, with growth this quarter projected by some economists to exceed 4 percent.

Growth in jobs and wages is one reason economists are more optimistic. Claims for jobless benefits averaged 304,000 last month, down from 318,000 in April. The U.S. unemployment rate was at 4.5 percent last month, close to a five-year low.

The Fed said the economy picked up in three of its 12 districts since mid-April, with a majority showing a ``modest or moderate'' pace of growth as more workers found jobs.

Hiring Picked Up

``Hiring activity picked up in late April through May, especially for workers with specialized skills,'' the Fed said this month in its regional survey known as the beige book.

Seven of the 10 economic indicators that make up the index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, supplier delivery times and factory hours.

The Conference Board estimates money supply, new orders for consumer goods and orders for non-defense capital goods.

Money supply adjusted for inflation, which has the biggest weighting in the index, subtracted 0.07 percentage point.

Manufacturers orders for non-defense capital goods were unchanged for a second month.

``The weakened industrial sector is currently limiting demand for transportation services, but we expect the U.S. economy to begin to show modest year-over-year improvement in the late summer to early fall timeframe,'' said Frederick Smith, chief executive officer of FedEx Corp., the world's largest air- cargo carrier. ``We remain optimistic about prospects for global economic growth.''

Other measures weighing down the leading indicator index included the average factory work week and the yield curve.

Growth Outlook

Federal Reserve Bank of Dallas President Richard Fisher said yesterday he expects accelerated growth in the U.S. economy in the second quarter. Fisher said working off excess inventories of unsold homes ``will take longer to run its course than most economic analysts think.''

``The other sectors of the U.S. economy are performing extremely well,'' Fisher said in a speech at the Abilene Country Club in Abilene, Texas.

The Conference Board's index of coincident indicators, a gauge of current economic activity, rose 0.2 percent in May, after increasing 0.1 percent the month before. The index tracks payrolls, incomes, sales and projections.

The gauge of lagging indicators rose 0.2 percent for a second month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

To contact the reporter on this story: Joe Richter in Washington cschlisserma@bloomberg.net

Last Updated: June 21, 2007 10:22 EDT