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Koji Sasahara, Associated Press
People look at an electronic stock board of a securities firm in Tokyo, Thursday, April 25, 2013.

LONDON — An improvement in U.S. economic data supported stock markets on Thursday, though concerns remained over a looming budget battle in Washington.

New data showed the number of Americans seeking unemployment benefits fell last week to 305,000, the second-lowest level in six years. The figures, combined with a report confirming the U.S. economy grew at an annualized rate of 2.5 percent in the second quarter, shored up sentiment.

European stocks recovered some of their early losses. Britain's FTSE 100 was flat at 6,555.05. Germany's DAX shed 0.1 percent to 8,655.72. France's CAC-40 lost 0.1 percent to 4,191.74.

Italian shares underperformed, however, falling 1.1 percent on concerns over the country's political stability. The members of Silvio Berlusconi's party threatened to resign en masse if the former premier is ousted from Parliament because of his conviction for fraud. That would trigger a political crisis that would undermine the country's ability to pass the reforms needed to emerge from its financial crisis.

Wall Street rose after five straight losing sessions. The Dow rose 0.5 percent to 15,352 and the S&P 500 gained the same rate to 1,701.37.

Despite the small improvement in market sentiment, traders will remain cautious in coming days as two financial deadlines for the U.S. government loom. Congress needs to pass a funding bill to keep the federal government operating after Oct. 1, when its new fiscal year starts. And the nation's borrowing limit needs to be raised before Oct. 17.

"The prospect of a U.S. Federal government shutdown is likely to undermine equity prices further in the coming days," said analysts at Capital Economics in an email commentary.

The White House and Republican lawmakers, who disagree on spending cuts and other key budget issues, have just days to reach a compromise. In 2011, a similar situation roiled markets at a time when Europe's debt crisis was flaring, and prompted Standard & Poor's to strip the U.S. of its triple A credit rating.

Earlier, in Asia, Japan's Nikkei 225 index overcame initial losses to advance 1.2 percent, closing at 14,799.12. South Korea's Kospi gained 0.5 percent to 2,007.32. Australia's S&P/ASX 200 index rose 0.4 percent to 5,294.50. Benchmarks in Indonesia and India rose, while those in Singapore, Taiwan, Thailand and the Philippines fell.

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Hong Kong's Hang Seng shed 0.4 percent to 23,125.03 and the Shanghai Composite Index dropped 1.9 percent to 2,155.81. Chinese banking shares fell after reports showed a sharp drop in total yuan deposits.

In commodity markets, the benchmark oil contract for November delivery was up 34 cents to $102.98 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 47 cents on Wednesday.

In currencies, the euro fell 0.2 percent to $1.3501 and the dollar rose 0.5 percent against the Japanese yen, to 98.95 yen.

Pamela Sampson in Bangkok contributed to this report.