Factory activity in the Mid-Atlantic region bounced back in July, lifting hopes of a pick-up in economic growth in the third quarter.

However, a rise in the number of Americans filing new claims for unemployment benefits suggested the reacceleration in output would not be as strong as had previously anticipated.

The Philadelphia Federal Reserve Bank said its business activity index rose to 3.2 from minus 7.7 in June, which was the lowest since July 2009. The rise beat economists' expectations for a reading of 2.0.

A reading above zero indicates expansion in the region's manufacturing.

It does lend support to the view that the economy, or at least the industrial sector, may be pulling out of its recent soft patch, said Peter Buchanan, an economist at CIBC World Markets in Toronto.

Separately, initial claims for state unemployment benefits increased 10,000 to 418,000, the Labor Department said, above economists' expectations for a rise to 410,000.

Economists said the elevated claims indicated the economy's anticipated pull out of the soft patch it has been trapped in since the beginning of the year might only be modest.

Jobless claims are a leading economic indicator. These numbers don't support the case for having 3.5 to 4 percent growth in the second half of the year that some people had talked about, said John Silvia, chief economist at Well Fargo in Charlotte, North Carolina.

Stocks extended gains on the Mid-Atlantic manufacturing survey. Sentiment was also boosted by earnings from Morgan Stanley and initial details of a rescue plan for Greece. U.S. Treasury debt prices fell, while the dropped against a basket of major currencies.

Details of the Philadelphia Fed's survey were fairly upbeat, with a measure of new orders edging up to 0.1 and the employment index rising to 8.9. Prices paid fell to the lowest level since September 2010.

The claims data covered the survey period for the closely watched nonfarm payrolls count for July, which will be released on August 5.

Initial claims fell 11,000 between the June and July survey periods and that, together with the rise in the Philadelphia Fed survey's employment gauge, suggested a modest improvement in payrolls after June's paltry 18,000 gain.

Job growth has faltered in the last two months, in line with the generally weak tone in the economy.

A rise in layoffs held back payroll growth in May, according to the department's latest Job Openings and Labor Turnover Survey, which was released last week.

Layoffs were probably behind the downshift in employment growth in June as well.

Other data on Thursday showed the Conference Board's Leading Economic Index increased 0.3 percent in June, slowing from a 0.8 percent rise in May.

A major consumer food producer, PepsiCo Inc, tempered its full-year outlook on Thursday due to economic uncertainty, sending its shares down slightly in premarket trading.

The maker of Pepsi-Cola, Frito-Lay snacks and Quaker oatmeal said it now expects 2011 earnings to grow at a high single-digit rate.

The company said the new goal reflects greater uncertainty regarding macroeconomic and consumer trends for 2011, high global commodity cost inflation and ongoing investments in emerging markets and brand building.

A government shutdown in Minnesota following a budget impasse resulted in an additional 1,750 state employees filing claims for jobless benefits last week, the Labor Department said. The shutdown ended this week.

Initial claims have now been above the 400,000 mark for 15 straight weeks. That level is usually associated with a stable labor market.

The four-week moving average of claims, considered a better measure of labor market trends, slipped 2,750 to 421,250.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 50,000 to 3.70 million in the week ended July 9.

The number of Americans on emergency unemployment benefits declined 80,133 to 3.15 million in the week ended July 2, the latest week for which data is available.

A total of 7.33 million people were claiming unemployment benefits during that period under all programs, down 159,000 from the prior week.

(Reporting by Lucia Mutikani; additional reporting by Leah Schnurr in New York; Editing by Neil Stempleman)

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