A surge in sales &
a Drop in claims : this is not a clause, since it lacks a VERB

(D) claims
, suggesting about the
economy that it might not be so weak as previously thought by some
analysts

(E)) claims
, suggesting the economy
 might not be as weak as previously thought to be by some analysts

Now in D & E : this
is a COMMA +ING construction …..which usually modifies the pre clause……………….Now
since we don’t have a clause before the COMMA….so what is this modifier modifying? : ELIMINATION
ZONE

Remaining A / B / C : you have already ruled out B, so it is
bxn A & C

C : ………………….
the economy might not be as Weak as have been previously thought by some
analysts.

“Have been
thought” implies started in the past & still continues…………whereas “Previously”
implies it’s a complete past event : so there’s a contradiction, ELIMINATION ZONE

Leading to A

well explained Sumit. keep on rolling!

Let me take an example:

A surge in new home sales and a drop in weekly unemployment claims suggest that the economy might not be as weak as some analyst previously thought.

Thanks Susmit!!

Also, to add to it, 

Yes, quite right! 🙂

I am a little confused on this point. A participle is an adjective and modifies noun or pronoun. How is “suggesting” acting like an adjective and it is modifying what?? please help!!

Isn’t there an SVA error in option(C) ? 

Not really. Option C uses passive construction and hence does not really follow Subject Verb Agreement 🙂