* Initial claims rise, but still near 7-year low
* Existing home sales up, shy of expectations
* Best Buy rises after results
* Indexes up: Dow 0.13 pct, S&P 0.37 pct, Nasdaq 0.68 pct (Adds existing home sales, comments, updates trading to midday)
By Chuck Mikolajczak
NEW YORK, May 22 (Reuters) - U.S. stocks advanced modestly on Thursday after the latest batch of mixed data failed to deliver the confidence boost needed by investors to push indexes past record highs set last week.
The number of Americans filing new claims for unemployment benefits rose in the week ended May 17 and were above expectations but remained near 7-year lows, pointing to labor market conditions that continued to strengthen. U.S. home resales rose in April and the supply of properties on the market hit its highest since August 2012, hopeful signs for the stalled housing market recovery.
The S&P 500 is less than 0.5 percent shy of its record intraday high set on May 13, but has been caught between the high and its 50-day moving average for the past week as data left investors unsure about the pace of the economic recovery.
"We have been in a 'two steps forward, one step back' progression on the domestic economy and that can be extended to the global economy as well," said Jim Russell, senior investment strategist at U.S. Bank Wealth Management in Cincinnati.
"We would characterize the rebound out of the weather-inhibited first quarter as a bit disappointing. We were looking for perhaps a bit more growth by mid-to-late May than what we are seeing."
The Dow Jones industrial average rose 22.25 points, or 0.13 percent, to 16,555.31, the S&P 500 gained 7 points, or 0.37 percent, to 1,895.03 and the Nasdaq Composite added 28 points, or 0.68 percent, to 4,159.54.
Best Buy Co rose 1.2 percent to $25.65. The electronics retailer reported first-quarter earnings that topped expectations and domestic comparable store sales that fell more than expected.
Sears Holdings Corp posted a bigger loss for the first quarter as the struggling retailer failed to arrest a fall in sales despite heavy discounts. Shares slipped 2.7 percent to $35.59.
Dollar Tree jumped 7.6 percent to $53.79, the best performer on the S&P 500, after posting first-quarter results and providing an outlook for the second quarter and full year.
Financial data firm Markit said its preliminary or "flash" U.S. Manufacturing Purchasing Mangers Index rose to 56.2 in May, stronger than an expected reading of 55.5. Factory output growth hit its fastest pace since February 2011.
Reynolds American Inc is in active discussions to buy Lorillard Inc in a complicated, three-way transaction that could see British American Tobacco PLC take a major role to back a potential merger, according to people familiar with the matter. Lorillard slumped 3.9 percent to $60.19 while Reynolds American shares dipped 1.7 percent to $58.76. (Editing by Bernadette Baum and Nick Zieminski)