(Adds data on factory activity, construction)
* 158,000 workers added to private payrolls in October
* Payroll reading first in revamped ADP methodology
* Jobless claims fell last week
* U.S. nonfarm productivity up 1.9 percent in 3rd quarter
* Manufacturing ISM rises in October to 51.7
WASHINGTON, Nov 1 (Reuters) - U.S. companies added jobs in October at the fastest pace in eight months, a sign of modest healing in the labor market just days before a presidential election that could hinge on the economy.
Other data on Thursday showed a drop in new claims for jobless benefits last week and a sharp improvement in consumer confidence in October, while there were mixed signals regarding the health of the factory sector.
Payrolls processor Automatic Data Processing said private employers added 158,000 workers last month. That was the biggest gain since February.
``There is some evidence of labor market improvement,'' said David Sloan, an economist at 4Cast in New York. ``It is not totally convincing yet but overall the message is positive.''
The ADP reading was the first under an overhaul of the report's methodology that increased the number of firms sampled. The aim is to make the report a better predictor of the government's payroll report.
The government report, due on Friday, is expected to show non-farm employers added 125,000 jobs in October, according to a Reuters poll taken before the ADP data was released.
Some economists adjust their non-farm payroll forecasts for the ADP data, although analysts are treating ADP's new methodology with caution.
``We're just going to have to learn over the coming months how accurate this new survey is,'' said Nigel Gault, an economist at IHS Global Insight in Lexington, Massachusetts.
U.S. stock prices rose following the improvement in consumer confidence, while prices for U.S. government debt slipped slightly.
The weak labor market has dominated the presidential campaign and Friday's employment report will give the last jobless rate before Tuesday's election. Polls show a very tight race between President Barack Obama and Republican challenger Mitt Romney.
The U.S. economy has recently shown some signs of health, with consumers spending more freely and home construction picking up.
U.S. consumer confidence rose in October to its highest since February 2008, the Conference Board said. Another report by the Commerce Department showed private construction in the housing sector rose 2.8 percent in September.
Still, the economy faces substantial headwinds, both from a cooling in global economic growth and uncertainty over plans to slash the U.S. budget deficit in January. Business investment sank in the third quarter, a sign companies lack confidence in the strength of the economic recovery.
A chill in the global economy, propagated by Europe's ongoing debt crisis, is weighing on factories from China to Latin America and the United States.
One measure of U.S. manufacturing in October showed the slowest pace of growth in more than three years, suggesting the sector could drag on overall economic growth in the final months of 2012.
Financial information firm Markit said its U.S. Manufacturing Purchasing Managers Index fell to 51.0 in October, below September's reading of 51.1. A reading above 50 indicates expansion.
Another report by the Institute for Supply Management (ISM) was more upbeat, showing the pace of growth in the U.S. manufacturing sector picked up modestly in October as new orders improved, though a measure of employment slowed.
``Manufacturing in the U.S. is recovering but the pace is not enough to provide improvement to the job market,'' Joseph Trevisani, a strategist at Worldwide Markets in Woodcliff Lake, New Jersey.
The U.S. economy perked up slightly in the third quarter, growing at a 2 percent rate after expanding by just 1.3 percent between April and June. It is expected to grow around 2 percent for the year.
The Labor Department said initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 363,000 last week. That was below the median forecast in a Reuters poll but was seen as a sign of slow healing in the labor market.
Separately, the number of planned layoffs by U.S. firms jumped 41.1 percent in October to the highest level in five months, according to a report from consultants Challenger, Gray & Christmas, Inc.
And in a sign that businesses may not be poised to ramp up hiring significantly, U.S. nonfarm productivity increased at a modest pace in the third quarter.
Productivity, which measures hourly output per worker, increased at a 1.9 percent annual rate, the Labor department said.
Many economists would read a slowdown in productivity growth as a sign that companies are closer to maxing out production with existing staff and would have to boost hiring.
But the third-quarter reading matched the revised reading for the prior three-month period.
The report showed unit labor costs fell for the first time since the fourth quarter of 2011, dropping at a 0.1 percent rate as growth in hourly compensation braked sharply.
(Additional reporting by Leah Schnurr, Herb Lash and Steven C. Johnson in New York; Editing by Neil Stempleman)