Data shows U.S. economy's pulse is still strong

WASHINGTON (Reuters) - The number of Americans filing new claims for jobless benefits fell to a 14-year low last week and industrial output rose sharply in September, positive signals that helped ease fears over the economic outlook.

Initial claims for state unemployment benefits dropped 23,000 to 264,000, the lowest level since 2000, the Labor Department said on Thursday.

A separate report from the Federal Reserve showed production at the nation's factories, mines and utilities advanced a larger-than-expected 1.0 per cent last month, the biggest gain since November 2012.

The data offered evidence the economy remained on solid ground, with the labor market gaining steam. Investors in recent days have come to the view that slowing growth overseas will weigh on the U.S. economy and force the Fed to delay a hike in interest rates, with weak retail sales data on Wednesday helping to fuel a global sell-off in stock markets.

The jobless claims report, however, reinforced expectations that slack in the labor market was being reduced and, combined with comments from a top Fed official, put a brake on the selling on Wall Street.

The Standard & Poor's 500 index closed up marginally on Thursday, while the blue chip Dow Jones industrials slipped a bit further.

A Reuters poll published on Thursday showed economists still clinging to the view that the Fed would raise benchmark borrowing costs from near zero in the second quarter of next year despite mounting signs of weakness overseas.

The poll, however, was largely completed before the latest stock market sell-off, which has been accompanied by a big shift in investor expectations for the path of U.S. monetary policy. Interest rate futures now point to a rate hike in October 2015.

St. Louis Federal Reserve Bank President James Bullard said in a television interview with Bloomberg that the U.S. central bank might want to keep its bond-buying stimulus program running for longer than anticipated to combat the risk of a drop in already low inflation, comments that eased investors' nerves.

But with the U.S. economy motoring ahead, many analysts said they expected Bullard's advice to fall by the wayside.

Economists still expect third-quarter growth to come in at around a 3 per cent annual rate, a view buttressed by the pickup in industrial output.