Boards sit outside a home under construction in a subdivision in east Denver on Tuesday, June 26, 2007. U.S. economic growth is likely to slow in coming months as the ongoing slump in the housing industry takes a deeper toll on businesses and consumers, a gauge of future business activity showed Thursday, July 19, 2007. [AP]

The Conference Board's index of leading economic indicators, released Thursday, signaled economic weakness with a 0.3 percent decline in June, more than the 0.1 percent analysts were expecting. The index had risen 0.2 percent in May after dropping 0.2 percent in April.

The report is designed to forecast economic activity over the next three to six months.

"The leading index has slowed in recent months, suggesting a possible softening of the overall pace of economic activity later in the second half of this year," the Conference Board's labor economist, Ken Goldstein, said in a statement accompanying the report.

Wall Street, meanwhile, focused on upbeat earnings reports. The Dow rose 78.29, or 0.56 percent, to 13,996.51.

Broader stock indicators rose. The Standard & Poor's 500 index advanced 5.91, or 0.38 percent, to 1,552.08, while the Nasdaq composite index rose 0.64 percent to 2,716.71.

The Conference Board report tracks 10 economic indicators. The index was dragged down in June by a drop in building permits as well as unemployment claims, consumer expectations, vendor performance and interest rate spread.

The positive contributors were weekly manufacturing hours, new orders for non-defense capital goods and stock prices. Manufacturers' orders for consumer goods and materials and real money supply held steady.

While the report captures the weakness in the housing market, it fails to reflect the economy's bright spots, said Brian Bethune, an economist with Global Insight.

"It's not picking up the strength of the global economy, the momentum of corporate profits driven by overseas sales and employment conditions," Bethune said.

That should offset some of the weakness in the housing sector, he said.

Also Thursday, the Labor Department reported that jobless claims dropped last week to the lowest level in two months.

The job market has held steady despite a yearlong economic slowdown that pushed overall growth to an anemic 0.7 percent in the first quarter, the poorest showing in more than four years.

The index of leading economic indicators has bounced up and down over the past few months, with offsetting increases and decreases suggesting that economic growth is likely to continue, but likely at a slower pace in the near term.

With the latest report, the cumulative change in the index over the past six months has dropped 0.7 percent, the Conference Board said.

Federal Reserve Chairman Ben Bernanke, in a second day of testimony before Congress on Thursday, repeated the Fed's belief that the economy will grow gradually this year, restrained by the housing slump.

Fed officials have held a key interest rate unchanged for little over a year, providing a period of stability to borrowers. Analysts expect the central bank to keep interest rates steady through the rest of the year.