While you were sleeping: US economy shows strength

BUSINESSDESK: Wall Street advanced as better-than-expected reports on the US economy kept alive optimism on the recovery without erasing hopes that US policymakers will still lend a helping hand to accelerate the pace of expansion.

"Reports from the 12 Federal Reserve Districts suggest economic activity continued to expand gradually in July and early August across most regions and sectors," the Fed says in its Beige Book regional business survey.

The US economy grew at a 1.7% annualised pace in the second quarter, according to Commerce Department data. That was better than the government's initial 1.5% estimate a month ago.

All eyes, however, are on Fed chairman Ben Bernanke's speech at a gathering of central bankers in Jackson Hole, Wyoming, Friday.

"I don't think this really changes the dovish sentiment of the Fed," Michael Hanson, a senior economist at Bank of America Merrill Lynch in New York, told Reuters. "They are going to look at this and say 1.7% is below trend, that's not where we want to be and the risks going forward are still material."

A separate report showed that pending home sales in the US rose 2.4% in July, comfortably surpassing expectations.

In late afternoon trading in New York, the Dow Jones Industrial Average rose 0.23%, while the Standard & Poor's 500 Index and the Nasdaq Composite Index each advanced 0.26%.

The better-than-expected economic data curbed demand for the US Treasury's auction. It sold $US35 billion of five-year notes at a yield that fell short of expectations at 0.708%, compared to a forecast of 0.716% in a Bloomberg News survey of seven of the Fed's 21 primary dealers.

The government is set to auction $US29 billion in seven-year securities tomorrow.

In Europe, the Stoxx 600 Index ended the session with a 0.1% decline from the previous close.

Some investors are becoming increasingly impatient with the delay between talk and action by European Union policymakers, including ECB president Mario Draghi, who promised last month that the central bank would do whatever it took, within its mandate, to preserve the euro.

"Investors want Draghi to put the money where his mouth is," Witold Bahrke, a senior strategist at PFA Pension in Copenhagen, told Bloomberg News.

"The European Central Bank seems to have developed a strategy of issuing a policy statement and letting it linger for a long time before backing it up by action. People in the market are getting annoyed with that."

Germany is not enamoured by MrDraghi's plans for additional ECB bond-buying to ease the borrowing costs on struggling eurozone nations, in particular Spain and Italy.