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US Economic Momentum Continues

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More signs that the US economy is moving in the right direction: The US Labor Department says new claims for unemployment benefits declined last week, dropping below 400,000 for the first time since July 2008. Other data also shows that businesses expanded in the month of December while home sales grew modestly in November. Despite the encouraging numbers, investors remain cautious as 2010 comes to a close.

New estimates show the snowstorm that lashed parts of the Northeast and Mid-Atlantic last week cost retailers about a billion dollars in lost sales.

Even so, strong sales before the storm put retailers on track for the best holiday season in two years.

The job market is also showing signs of improvement. And sales of existing homes have now risen four out of the last five months.

Despite the positive momentum, consumer confidence actually dropped in December.

Economist Peter Cardillo says the big worry is continuing high unemployment.

"I think it's just a psychological factor that is affecting the consumer," said Cardillo. "Will I lose my job? If I do, it's going to be very difficult to get one."

Caution continued on Wall Street Thursday, as investors sold stocks to lock in gains made during the year.  

The S&P 500 is up 6.7 percent this month, putting stocks at their highest level since September 2008.

Standard and Poor's analyst Alec Young is betting that continuing US growth will keep the rally going into the New Year.

"You have a lot of people playing catch up," said Young. "They were under-exposed to the US stock market this year. They were too worried about the economy; a lot of nervous Nellie's there chasing performance. They want to be seen to be a part of this rally by year's end."

Despite concerns about the global impact of China's efforts to cool down its economy, and the ongoing debt crisis in Europe - analysts say the world will be looking closely at how the US economy performs in 2011.

That's particularly true for export driven economies.

Shinichi Ichikawa is an equity strategist at Credit Suisse Securities in Japan:

"If we can expect an improvement in the US economy, then we can expect that improvement in the Japanese economy, especially the last part of 2011 and of course 2012, prior to the next presidential election," said Ichikawa.

Investors should get a better indication of how the US economy will do in 2011 when the Labor Department releases its first unemployment report of the new year on January 7.

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