NEW YORK (CNN/Money) - A key gauge meant to forecast economic activity posted its biggest gain in 17 months in May, a research group said Thursday, pointing to a possible pickup in the world's largest economy in the months ahead.

The Conference Board, a New York-based business research group, said its Index of Leading Economic Indicators rose 1 percent last month, the largest increase since December 2001. The index is designed to predict the economy's direction in the next six to nine months or so.

Topping Wall Street forecasts for an increase of 0.7 percent, the gain was due mostly to rising stock prices, growth in the money supply, and improved consumer confidence, the group said, though most other components of the index rose slightly.

The sharp gain in the index came after mostly flat readings during the first half of the year.

The Conference Board said two straight increases may signal an upward trend in the economy. The index rose 0.1 percent in April as the United States struggled with fears surrounding the U.S.-led war in Iraq, and the after-effects of the Sept. 11 attacks and the corporate scandals.

Separately, new jobless claims fell last week but remained at a high level, the government reported, another sign that the labor market is struggling to recover. (Click here for more.)

In addition, the broadest measure of the U.S. trade with the rest of the world rose nearly 6 percent in the first quarter to a record $136.1 billion, the government said.

Still, the deficit in the current account, which measures investment and transfer flows as well as the movement of goods and services across borders, came in smaller than economists had forecast. (Click here for more.)

Meanwhile, the Philadelphia Fed's index of business conditions in Pennsylvania, New Jersey and Delaware rose to 4.0 from negative 4.8 in May, pointing to expansion in the industry. Economists, on average, expected an index reading of 3.3, according to a Reuters poll.

But Wall Street traders were probably expecting the report to be even better, based on Monday's report from the New York Fed that its "Empire State" index of New York manufacturing activity nearly tripled in June, hitting the highest level in its two-year history. (Click here for more.)

The market hit new almost one-year highs early in the week and has been essentially treading water since then. Investors' reactions to economic and corporate news have been muted ahead of next week's highly-anticipated Federal Reserve meeting.

At around 12:30 p.m. ET, the Dow Jones industrial average (down 87.24 to 9,206.56, Charts), the Nasdaq composite (down 14.65 to 1,662.49, Charts) and the S&P 500 (down 10.27 to 999.82, Charts) all posted declines. (Click here for more.)