A key gauge of economic activity rose 0.5 percent in May, a signal that the U.S. economy is poised to recover, albeit at a slow pace. 

The New York-based Conference Board said its Index of Leading Economic Indicators, edged higher last month to 109.3 after moving up 0.1 percent in April. 

Analysts were expecting a 0.3 percent increase. 

Ken Goldstein, an economist for the Conference Board said while the index predicted the economic slowdown early last year, business activity is starting to improve. 

The ``latest readings suggest the U.S. economy may be poised for some recovery,'' Goldstein said. 

The index is closely watched because it indicates where the overall U.S. economy is headed in the next three to six months. It stood at 100 in 1996, its base year. 

Stocks moved higher early Wednesday following the release of the report. The Dow Jones industrial average climbed 67 points to 10,664 and the Nasdaq composite index was up 15 points at 2,008. 

Moderate strength in the services industry, as well as a limited recovery in the manufacturing sector, is indicating the U.S. economy may slowly rebound following months of weak corporate earnings, plunging stock prices and mass job cuts, Goldstein said. 

In an effort to prevent the U.S. economy from slipping into a recession, the Federal Reserve has slashed interest rates five times this year, and is expected to trim them again when it meets next week. 

The Conference Board said six of the 10 components that make up the leading indicators index increased last month: interest rate spread, stock prices, index of consumer expectations, money supply, building permits and manufacturers' new orders for nondefense capital goods. 

The negative contributors to the index were vendor performance, average weekly manufacturing hours, and average weekly initial claims for unemployment insurance. Manufacturers' new orders for consumer goods held steady. 

The group's index of coincident indicators, which measures current economic activity, held steady at 116.3. 

The index of lagging indicators, which reflect changes that have already occurred, fell 0.2 percent to 106.6. 

The Conference Board is a nonprofit research and business group, with more than 2,700 corporate and other members around the world.