WASHINGTON - THE number of US workers filing new claims for jobless benefits fell more than expected last week, a government report showed on Thursday, but remained at high levels consistent with a severe recession.

The Labor Department said initial claims for state unemployment insurance benefits fell by 31,000 to a seasonally adjusted 639,000 in the week ended Feb 28 from an upwardly revised 670,000 the prior week. Analysts had forecast new claims at 650,000 last week.

Workers less productive IN ANOTHER report, the Labor department said US non-farm productivity fell at a revised 0.4 per cent annual rate, sharply below initial estimates of a 3.2 per cent advance published last month and 2.2 per cent rise in the third quarter. Output was revised to show a steep 8.7 per cent decline in the fourth quarter, the sharpest decline since the first quarter of 1982. It was initially estimated as a 5.5 per cent fall. For 2008, productivity rose 2.8 per cent, unchanged from last month's estimate. ... more

US stock index futures trimmed losses after the report, while government bond prices pared gains. 'We had a bit of a drop, but a drop from a high level, so the numbers remain very high. This continues to be a very weak labor market,' said Mr David Wyss, chief economist at Standard & Poor's in New York.

The number of people staying on the benefits after drawing an initial week of aid eased by 14,000 to 5.11 million in the week ended Feb 21, the latest week for which the data is available, from 5.12 million the previous week.

That number remains near record highs, showing the harsh economic environment is making it tough to find new jobs.

Escalating job losses as companies struggle with falling revenues and tight profit margins are further crimping household spending, creating a vicious cycle for the an economy entangled in a recession since December 2007.

Investors are bracing for an ugly February non-farm payrolls report on Friday, which a Reuters survey predicted would show job losses of around 648,000 and the unemployment rate at its highest in a quarter century.

The government is intervening with a US$787 billion (S$1.22 trillion) stimulus package to try and break the economy's alarming downward spiral, but the success of this plan depends on stabilizing the fractured financial system and collapsed housing market.

The insured unemployment rate was 3.8 per cent in the week ended Feb. 21, unchanged from the previous week.

The four-week moving average for new claims, considered to be a better gauge of underlying trends as it irons out week-to-week volatility, rose to 641,750 in the week ended Feb 28 from 639,750 the week before. -- THOMSON REUTERS