* Initial claims rise, but still near 7-yr low
* Existing home sales shy of expectations
* Best Buy rebounds from early declines after results
* Indexes up: Dow 0.03 pct, S&P 0.12 pct, Nasdaq 0.23 pct (Updates to market open, adds existing home sales, quote)
By Chuck Mikolajczak
NEW YORK, May 22 (Reuters) - U.S. stocks were modestly higher on Thursday after the latest batch of mixed data gave investors little reason to push indexes past record highs.
The number of Americans filing new claims for unemployment benefits rose 28,000 to 326,000 in the week ended May 17, above the 310,000 forecast but close to a seven-year low, pointing to ongoing healing in the labor market.
Existing home sales increased 1.3 percent to an annual rate of 4.65 million units, slightly below the 4.68-million unit estimate. But the second increase in sales in nine months suggested the housing market may be steadying.
The S&P 500 is roughly 0.5 percent shy of its record intraday high set on May 13, but investors have been reluctant to push equities higher as economic data has cast doubt on 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 5.53 points or 0.03 percent, to 16,538.59, the S&P 500 gained 2.26 points or 0.12 percent, to 1,890.29 and the Nasdaq Composite added 9.41 points or 0.23 percent, to 4,140.95.
Best Buy Co rebounded from premarket declines to rise 5.8 percent to $26.81. The electronics retailer's first-quarter earnings topped expectations, though domestic comparable store sales 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 0.4 percent to $36.40.
Dollar Tree jumped 7.5 percent to $53.72, 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 the 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 5.5 percent to $59.17 while Reynolds American shares dipped 1.7 percent to $58.74. (Editing by Bernadette Baum and Nick Zieminski)