The growth outlook was further buoyed by other reports on Thursday showing factory activity gaining steam and a solid increase in a gauge of future economic activity.

"The data are pointing to stronger growth than the Fed has been forecasting," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania, and a member of the Newsmax Financial Braintrust Alliance.

"The Fed will be compelled to raise rates earlier than many expect."

Editor's Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

The National Association of Realtors said existing home sales last month increased 2.4 percent to an annual rate of 5.15 million units, the highest reading since last September.

It was the fourth straight monthly gain in sales, confounding economists who had expected a decline.

In a further encouraging sign, the share of first-time buyers rose for a second consecutive month and more houses came onto the market, which should temper price increases. Earlier stages of the housing recovery had been driven by investors.

"The economy is beginning to fire on more cylinders," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

Housing activity stagnated in the second half of 2013, weighed down by a run-up in mortgage rates and home prices, but it now appears to be regaining its footing. A report on Tuesday showed a surge in new home construction in July.

"We are moving back to a more normal market where it's driven by the fundamentals of confidence in the economy," said Budge Huskey, chief executive officer of Coldwell Banker Real Estate in Madison, New Jersey.

A separate report from the Labor Department showed initial claims for state unemployment benefits last week fell 14,000 to a seasonally adjusted 298,000. Economists had expected a smaller drop.

While a four-week average of claims, which is considered a better measure of labor market trends as it irons out week-to-week volatility, rose marginally, it also remained at a level consistent with solid job growth.

The data helped lift investor sentiment on Wall Street, with the S&P 500 index hitting an intraday record. The PHLX housing sector index also rose slightly, though housing giants Pulte Group and DR Horton were little changed.

The dollar slipped against a basket of currencies, while prices for U.S. Treasury debt rose.

FIRMING LABOR MARKET

The jobless claims report covered the period during which the government surveyed employers for its monthly report on nonfarm payrolls. 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 has caught Federal Reserve officials by surprise. Minutes of the Fed's July policy meeting published on Wednesday showed officials viewed the improvement in labor market conditions as "greater than anticipated" and hinted that it could lead to an early interest rate increase.

In another report, financial data firm Markit said its preliminary, or "flash" U.S. Manufacturing Purchasing Managers Index rose this month to its highest level since April 2010.

That show of strength was corroborated by separate data from the Philadelphia Federal Reserve Bank that showed factory activity in the mid-Atlantic region this month hit its highest level since March 2011.

A fifth report from the Conference Board showed its Leading Economic Index increasing for a sixth straight month in July.

Editor's Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)