Updated 3:17 p.m. ET

Stocks were holding on to small gains this afternoon in a rally helped by better-than-expected new-home sales and a drop in jobless claims.

At 3 p.m. ET, the Dow Jones industrials ($INDU) were up 29 points to 10,463. The Nasdaq Composite Index ($COMPX) had gained 8 points to 2,177, and the Standard & Poor's 500 Index ($INX) had added 5 points to 1,110.

Markets will be closed Thursday for Thanksgiving and trade for a half-day on Friday.

The Labor Department reported that initial jobless claims fell below 500,000 last week for the first time since Jan. 3. The 466,000 level was the lowest since September 2008.

Meanwhile, there are hints that consumers are spending again. Consumer spending rose 0.7% in October, the Commerce Department reported this morning, better than the 0.6% gain economists had expected.

And new-home sales jumped 6.2% last month to a seasonally adjusted annual rate of 430,000, the highest level since September 2008. Better, the inventory of unsold homes fell to its lowest level since 1971.

There was one down piece of data: a drop in durable-goods orders.

Yields on 7-year Treasury notes fell and prices rose as the Federal Reserve's pledge to keep interest rates near record lows drove stronger-than-forecast demand at a record $32 billion auction of the debt.

The securities drew a yield of 2.835%, compared with a
Bloomberg News forecast of 2.878%. Bloomberg had surveyed eight of the Federal Reserve's 18 primary dealers.

• Bing: What drives Treasury yields lower?

The Fed said in minutes released Tuesday of its early November meeting that interest rates would remain near zero "for an extended period" as long as inflation expectations are stable and unemployment fails to decline.

"It was a spectacular auction," said Ray Remy, head of fixed income in New York at Daiwa Securities America, one of the primary dealers required to bid at Treasury auctions.

Updated: 2:20 p.m. ET.

U.S. new-home sales rose 6.2% in October to a seasonally adjusted annual rate of 430,000, the Commerce Department reported this morning, the highest level since September 2008.

The sales rate was also well above expectations of a 390,000 pace.

Separately, mortgage rates fell to a new low.

September's number was revised slightly higher to 405,000 from an originally reported 402,000.

"Sales got an extra kick from the tax credit," Dean Maki, chief U.S. economist at Barclays Capital, told Bloomberg News. "Even though the surge is policy-induced, it shows buyers have enough confidence to undertake a major purchase if conditions are right. Affordability has increased dramatically."

U.S. consumers are once again spending more than they are earning.

Consumer spending rose 0.7% in October, the Commerce Department reported this morning, after a 0.6% decline in September.

Economists were looking for a 0.6% gain. Incomes rose 0.2% last month, the same as in the previous month and higher than the 0.1% increase economists had expected.

Wages and salaries were unchanged last month after slipping 0.1% in September. 

As a result of spending rising faster than incomes, the personal savings rate fell to 4.4% of disposable income last month from 4.6% in September.

Toyota Motor (TM) this morning said it will replace the accelerator pedals on 3.8 million vehicles in the U.S., just two months after announcing its biggest recall ever.

Toyota is redesigning and reconfiguring the accelerator pedal, the National Highway Traffic Safety Administration said in a press release. In some cases, Toyota will also reconfigure the shape of the floor surface under the pedal to address the risk of pedal entrapment due to floor mat interference.

The company will develop replacement pedals that will be available for certain models by April 2010, according to the NHTSA. Vehicles that are repaired sooner will get the new pedals when they are ready.

Bing: Automobile recalls

In addition, Toyota will give owners of vehicles with Toyota or Lexus accessory all-weather floor mats newly designed mats.