Stocks edged higher on Thursday, putting the benchmark S&P 500 index on track for its third straight advance after economic data pointed to gradual improvement in the economy.

The number of Americans filing new claims for jobless benefits hit a 3-1/2 year low last week, bolstering views the economy was gaining momentum. Third-quarter growth was revised down but showed household consumption remained healthy.

It appears to be the case we had more inventory liquidation than we thought, which means that if end-of-market demand remains strong in Q4 and it apparently is, then we should be looking at an inventory restocking cycle that commences. And we have confirmation that started in October, looking at the manufacturing and wholesale inventory numbers, said Phil Orlando, chief equity market strategist at Federated Investors in New York.

Clearly the year has ramped nicely, based on an improving economic picture. The double-dip fear the bears were talking about in the second half of the year is off the table at this point and investors are seeing domestic fundamentals are in pretty good shape.

The Dow Jones industrial average <.DJI> gained 49.05 points, or 0.41 percent, to 12,156.79. The Standard & Poor's 500 Index <.SPX><.INX> rose 5.85 points, or 0.47 percent, to 1,249.57. The Nasdaq Composite Index <.IXIC> advanced 18.00 points, or 0.70 percent, to 2,595.97.

Volume is expected to remain light as the Christmas holiday draws closer, leaving the market susceptible to heightened volatility.

Yahoo Inc advanced 1.5 percent to $16.23 in premarket trade after sources said the company was considering a plan to unload stakes in its prized Asian assets as part of a complicated share transaction.

Tibco Software Inc climbed 7 percent to $23.53 after the business software maker posted strong quarterly results and forecast first-quarter revenue above estimates.

American Greetings Corp slumped 20.4 percent to $13.51 trade after reporting third-quarter earnings and a 2012 outlook.

Other data expected later includes the Thomson Reuters/University of Michigan Surveys of Consumers at 9:55 a.m. EST, and the November report on leading economic indicators from the Conference Board at 10 a.m. EST.

(Reporting By Chuck Mikolajczak; editing by Jeffrey Benkoe)