* 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
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, although another survey showed planned layoffs rose in October.
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 index futures saw little impact from the data with Wall Street looking at a flat open in the aftermath of the massive storm that hit the U.S. Northeast. The dollar rose to a session high against the yen.
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. But business investment sank in the third quarter, a sign companies lack confidence in the strength of the economic recovery.
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 of 370,000.
An analyst from the department said New Jersey and Washington, D.C., did not turn in data due to the mammoth storm Sandy, which hit the Northeast earlier this week. The Labor Department estimated results for the state and for the nation's capital.
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.
That reading included more than 10,000 jobs in U.S.-owned auto plants in Europe.
In another report, the Labor Department said U.S. nonfarm productivity increased at a modest pace in the third quarter, giving little sign that businesses are poised to ramp up hiring significantly.
Productivity, which measures hourly output per worker, increased at a 1.9 percent annual rate.
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. Analysts had expected a 1 percent increase.
(Additional reporting by Leah Schnurr and Herb Lash in New York; Editing by Neil Stempleman)