U.S. consumer spending rebounded in May and new applications for unemployment benefits fell last week, suggesting the economy remained on a moderate growth path.

Other data on Thursday showed contracts to buy previously owned homes surged to their highest level in more than six years in May, keeping the recovery anchored in the face of tighter fiscal policy.

"Economic growth is not over the top, that's for sure," said Chris Rupkey chief financial economist at the Bank of Tokyo-Mitsubishi UFJ in New York. "We expect, however, economic growth will be strong enough to bring unemployment down at an acceptable pace."

The Commerce Department said consumer spending increased 0.3 percent last month, reversing April's 0.3 percent drop. The increase was in line with expectations.

When adjusted for inflation, consumer spending rose 0.2 percent last month. However, the so-called real consumer spending for April was revised to show the first contraction in six months.

This suggests second-quarter consumer spending growth could slow a little bit more than economists had previously anticipated and hold back overall economic growth.

Consumer spending grew at a 2.6 percent annual pace in the first quarter.

Some economists pared their second-quarter gross domestic product estimates. Barclays cut its GDP forecast by 0.4 percentage point to a 1.4 percent annual pace, while Morgan Stanley trimmed its estimate to 1.5 percent from 1.6 percent.

The economy expanded at a 1.8 percent rate in the first three months of the year.

In a separate report, the Labor Department said initial claims for unemployment benefits fell 9,000 to a seasonally adjusted 346,000. The four-week moving average for new claims, which irons out week-to-week volatility, fell 2,750 to 345,750.

The claims report signaled little change in the pace of job growth. Employment growth has averaged 189,000 jobs per month so far this year.

"It appears that the underlying pace of layoffs remained stable during June. The other half of the employment equation, hiring, also likely held steady," said Guy Berger, an economist at RBS in Stamford, Connecticut.

DATA TONE IMPROVING

Recent data, including housing, regional factory activity, business spending plans and consumer confidence, have pointed to an economy that is regaining its footing after stumbling early in the second quarter.

That is broadly supportive of the view the Federal Reserve expressed last week that the downside risks to the economy's outlook have waned. Fed Chairman Ben Bernanke said the U.S. central bank could start scaling back on the pace of its monthly bond purchases this year.

U.S. stock were trading higher in morning trade. The dollar touched a session high against the yen, while prices for U.S. Treasury debt pushed higher.

The economy's stabilizing tone was underscored by a report from the National Association of Realtors showing signed contracts in May to buy previously owned homes surged to their highest level since December 2006.

While part of the jump in pending home sales reflected a rush by buyers to lock in deals before mortgage rates climbed higher, it was also a sign of underlying strength in the housing market.

The NAR's Pending Home Sales Index, based on contracts signed last month, increased 6.7 percent to 112.3.

The improving growth theme held as other details of the Commerce Department report showed income grew 0.5 percent last month, the largest gain since February, after nudging up 0.1 percent in April. That reflects a steady pace of job gains.

Households also saved a bit more last month, lifting the saving rate to a five-month high of 3.2 percent.

There was also a bit of inflation in the economy last month, pointing to some pick-up in demand.

A price index for consumer spending inched up 0.1 percent in May after declining two straight months. A core reading that strips out food and energy costs also rose 0.1 percent after being flat in April.

Over the past 12 months, inflation increased 1 percent, well below the Fed's 2 percent target but up from a 0.7 percent reading in the period through April.

Core prices were up 1.1 percent from a year ago, the same as in April. While that suggested some stabilization after a long period of disinflation, it matched a record low reached only a few times since the series started in 1960.

Falling healthcare costs have pulled core inflation lower, but Bernanke said last week that those prices should turn higher as he made the case for a likely reduction in the Fed's bond-buying stimulus later this year.

One Fed official, St. Louis Federal Reserve Bank President James Bullard, has said Bernanke should have waited for clearer signs inflation was turning higher before laying out the case for less Fed stimulus.