New US claims for unemployment benefits dropped to a seven-month low last week, a government report showed today, suggesting the labour market was gaining some traction.

Initial claims for state unemployment benefits fell 5,000 to a seasonally adjusted 388,000, the Labor Department said, from an upwardly revised 393,000 the prior week.

Economists polled by Reuters had forecast claims rising to 395,000 from the previously reported 390,000.

The claims data covered the survey period for November's nonfarm payrolls. Claims dropped 16,000 between the October and November survey weeks, implying an improvement in nonfarm employment.

After wobbling in the second quarter, the labour market is regaining momentum, but not enough to cut into a 9 per cent unemployment rate and promote faster economic growth.

The unexpected decline in claims last week was the latest sign that the economy maintained speed in the fourth quarter, further reducing the risk of a new recession.

But the crisis in Europe, which has caused bond market turmoil across the region, could derail the recovery.

A Labor Department official described the report as straightforward.

Initial claims have now held below the 400,000 mark that is normally associated with some healing in the jobs market for a second straight week.

The four-week moving average of claims, considered a better measure of labor market trends, fell 4,000 to 396,750 - the lowest since April.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 57,000 to 3.61 million in the week ended November 5

Economists forecast so-called continuing claims rising to 3.64 million from a previously reported 3.62 million.

The number of Americans on emergency unemployment benefits slipped 18,358 to 2.94 million in the week ended October 29, the latest week for which data is available.

A total of 6.77 million people were claiming unemployment benefits during that period under all programs, down 62,278 from the prior week.

Reuters