WASHINGTON -- Business conditions look a bit brighter in most of the United States as retailers express optimism about sales to holiday shoppers, the Federal Reserve Board said yesterday.

"Reports on economic conditions point to modest improvement in most Federal Reserve districts, but the rate of gain is uneven," says the "beige book," a survey of business sentiment in the 12 Fed districts. The report, based on information collected before Dec. 1, serves as a guide to deliberations by members of the Federal Open Market Committee.

The panel is scheduled to meet Dec. 22 to review monetary policy. Analysts expect the central bank to hold short-term rates steady given the recent evidence that the economy is slowly improving.

California remains the major weak spot, with the Fed's report saying the state continues to suffer from low consumer confidence, a soft real estate market, and defense cutbacks.

Retail sales in October and early November gained strength in all districts except San Francisco, "and retailers are optimistic about the current holiday season," the report says.

However, assessments varied by region. Chicago retailers expected the best performance in eight years, while stores in New York said they expected "nothing spectacular," the report notes.

Retail sales in five of the 12 districts surveyed were better than expected in recent weeks. In most districts, retailers said consumer confidence was improving, which is in line with recent surveys from the Conference Board and other sources.

The manufacturing sector has remained flat or improved slightly in most of the nation, the report says, Indicators from Dallas are described as "strong," while Boston, Philadelphia, Cleveland, and Chicago reported smaller gains. The two big exceptions were in the New York and California districts, "which continue to experience weak demand."

Demand for home building and furnishing products was up in half a dozen districts, but demand for autos and transportation equipment was mixed, the report says. Defense cutbacks continued to pinch the Boston, New York, Atlanta, St. Louis, and San Francisco districts.

Some manufacturers showed scattered signs of hiring, the report says, but employment in general is not expected to increase in proportion to demand because plants remain committed to cutting costs and boosting productivity.

All 12 districts reported improved sales of new and existing homes, with Dallas reporting the highest level of sales in five years. October sales in California rose for the first time since February.

However, the commercial real estate sector remained weak, with high office vacancy rates in many districts. No district reported any growth in commercial office construction.

Banks and other financial institutions reported a slight increase in loan demand despite a fall-off in mortgage refinancings. Philadelphia, Kansas City, and St. Louis reported a rising interest in business loans, and Dallas and Atlanta saw an increase in consumer loans.

On the other hand, New York reported demand for non-residential mortgages remained soft, and San Francisco said business lending activity was still weak.

Separately, a senior Fed aide yesterday offered guarded hope that economic and financial conditions are getting a little better. "I think we're seeing some stirrings that things are picking up a bit," Donald Kohn, director of monetary affairs, told manufacturing executives at a luncheon sponsored by the National Association of Manufacturers.

With bank profits and reserve levels up, said Kohn, there are signs of increased bank lending in the last three months. Kohn also said he is encouraged by recent economic indicators and moves by consumers and businesses to improve their balance sheets.

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