WRAPUP 3-U.S. jobless claims fall to three-month low

* Initial jobless claims fall 21,000 last week

* Claims lowest in three months

* Continuing claims lowest in nearly two years

(Updates markets to close)

By Lucia Mutikani

WASHINGTON, Oct 28 (BestGrowthStock) – New claims for U.S.
unemployment benefits unexpectedly fell to a three-month low
last week but the underlying trend still points to labor market
stagnation.

Initial claims for state unemployment aid dropped 21,000 to
a seasonally adjusted 434,000, the Labor Department said.

Economists had forecast they would edge up to 453,000. The
prior week’s figure was revised up to 455,000 from 452,000.

Thursday’s data, however, will likely carry little weight
at the Federal Reserve’s policy meeting on Tuesday and
Wednesday, where further monetary stimulus for the sluggish
economy is expected to be announced.

The weak economic recovery is a problem for congressional
Democrats, who appear likely to lose their majority in the U.S.
House of Representatives in elections next Tuesday. Their
Senate majority is also seen at risk. For more see [USVOTE].

Some analysts said difficulties adjusting the data for
seasonal factors may have skewed the numbers but others
disagreed. The data followed the the Columbus Day holiday.

Claims tend to rise in the week after a public holiday but
a department official noted that the rise in applications wasnot been as large as the model assumed when smoothing the data,
leading to the decline in the adjusted number.

“My sense is today’s number was organic, there weren’t any
weird quirks in it,” said Neil Dutta, an economist at Bank of
America Merrill Lynch in New York.

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For a graphic on U.S. jobless claims see:

http://r.reuters.com/fud72q

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FOUR WEEK AVERAGE FALLS

The four-week average of new jobless claims, considered a
better measure of underlying labor market trends, fell 5,500 to
453,250, but remained in the range seen for much of this year.

“That’s consistent with a labor market that is
fundamentally stagnant. Anecdotally there is huge uncertainty
hanging in the market right now, there really is no impetus for
a leg up in job growth,” said Dutta.

U.S. financial markets remained focused on the Fed’s Nov.
2-3 meeting, with traders on Wall Street shying away from
taking big bets. Stocks (.SPX: ) ended flat as traders also
turned cautious ahead of Tuesday’s midterm vote.

Prices for U.S. government debt (US10YT=RR: ) rose, while the
U.S. dollar fell against the euro (EUR=: ) and yen (JPY=: ).

The U.S. economy’s painfully slow recovery from the worst
recession since the Great Depression has left the labor market
subdued and the unemployment rate at 9.6 percent.

TARGET INTEREST RATES

The U.S. central bank cut overnight interest rates to near
zero in December 2008 and has bought about $1.7 trillion worth
of Treasury and mortgage-related debt since then in an effort
to stimulate the sluggish economy by making money cheaper.

But it is concerned about the high level of unemployment
and the low level of inflation, and analysts look for the Fed
to launch a fresh round of bond purchases next week.

Some analysts believe it could also begin targeting
interest rates to ward off the possibility of deflation — a
pernicious downward spiral in prices.

“The Fed is going to be more novel than most people
believe,” said Haag Sherman, chief investment officer at
Salient Partners in Houston, Texas.

“They may actually target interest rates and leave the
actual amount of bond purchases vague, which will allow them to
save some of their ammunition. The market will recalibrate the
(Treasury) yield curve based on their interest rate
targeting.”

The government is expected to report on Friday that the
U.S. economy expanded at a 2.0 percent annualized rate in the
third quarter, a touch faster than the second quarter’s 1.7
percent but too sluggish to make a dent in the ranks of the
jobless.

“We think the slow pace of hiring will not be sufficient to
absorb growth in the labor force and that the unemployment rate
will tick up to 9.7 percent,” said Julia Coronado, an economist
at BNP Paribas in New York.

In the week ended Oct. 16, the number of people still
receiving benefits after an initial week of aid dropped 122,000
to 4.36 million, the lowest since November 2008.

The continuing claims data covered the period for the
household survey from which the unemployment rate is derived.

The number of people on emergency benefits fell 258,102 to
3.78 million in the week to Oct. 9.

WRAPUP 3-U.S. jobless claims fall to three-month low