WASHINGTON - US WEEKLY jobless claims plummeted last week but the improvement was probably a seasonal quirk rather than a turning point for the recession-ravaged labour market.

Separate reports on Wednesday on business activity in New York City and Milwaukee showed no sign of a recovery, while 30-year fixed mortgage rates eased for the ninth consecutive week as official efforts to bolster the housing market appeared to gain traction.

Although the government reported the biggest drop in jobless claims since 1992, economists said the data did not reflect a change in the labor market which has been weakening for a year.

'We have once again entered a silly season for (jobless) claims,' said JPMorgan economist Abiel Reinhart.

Initial claims for state unemployment insurance benefits fell 94,000 to a seasonally adjusted 492,000 in the week ended Dec 27 from an unrevised 586,000 the prior week, the Labour Department said.

It was the lowest reading for initial claims since the week ended Nov 1 and well below the 565,000 new claims analysts had expected, according to a poll by Reuters.

'Economic conditions have been difficult and unemployment claims remain higher than anyone would want to see,' said White House spokesman Tony Fratto.

The government and US Federal Reserve has pumped hundreds of billions of dollars into the economy to support banks and restore consumer spending.

Yet a yearlong US recession has already destroyed 2.7 million jobs while pushing the country's unemployment rate up to 6.7 per cent, with many economists expecting it to advance well above 8 per cent in 2009.

A Labour Department official said the timing of the year-end holidays and volatility in factors used to seasonal adjust the data was likely to blame for the large decline in initial weekly claims, and he warned this situation could persist for several more weeks.

'The numbers seemed unbelievable but the states certified they were correct,' the Labour Department official said.

Prices on US government bond, which usually fall on signs of economic strength, extended losses on the drop in claims while major stock indexes gained more than 1 per cent.

'The bottom line here is that it probably won't be until mid-January that we begin to get a clear picture of what claims are saying. Until then it is best to focus on the four-week average,' said Mr Reinhart, the JPMorgan economist.

The four-week average of new jobless claims, a better gauge of underlying employment trends because it irons out week-to-week volatility, dropped to 552,250 from 558,000 the week before.

The number of people remaining on the benefits roll after drawing an initial week of aid rose 140,000 to a more-than-forecast 4.506 million in the week ended Dec 20, the most recent week for which data is available.

This was the highest since the week ended Dec 4, 1982, when continued claims were 4.509 million. Analysts estimated continued claims would be 4.430 million.

In separate reports, the National Association of Purchasing Management-New York's index of business activity was little changed in December, but managers were a little less pessimistic.

A report from the Institute for Supply Management-Milwaukee showed business activity in the region contracted for a 10th straight month, and the pace of the decline accelerated.

Both of the regional reports showed employers continue to chop payrolls.

Government-backed mortgage giant Freddie Mac said 30-year fixed mortgage rates fell to 5.10 per cent from 5.14 per cent the week before, notching the third consecutive all-time low since records began in 1971.

The US Federal Reserve said on Tuesday it plans to spend US$500 billion on mortgage securities in the next six months in a bid to cut lending rates for home loans. Mortgage rates have tumbled since the Fed announced the program last month.

The drop in mortgage rates has sparked a recent flurry of demand for home loans, with applications holding at a five-year high last week, according to a report by the Mortgage Bankers Association.

However, economists cautioned that a surge in interest in mortgages will not necessarily translate into demand for housing, as most of the applications have been to refinance existing mortgages. -- REUTERS