U.S. initial jobless claims fell more than expected last week and showed their biggest decline since February, in a hopeful sign for the U.S. labor market.

KEY POINTS: * The number of Americans filing for first-time unemployment benefits dropped sharply to 404,000 from a downwardly revised reading of 441,000 in the prior week, the Labor Department said on Thursday. * The 37,000 drop in claims was the biggest since the week that ended Feb 6, when claims fell by 51,000. Analysts had expected weekly jobless claims to fall to 420,000. * A Labor Department official said the larger-than-expected decline was partly explained by jobless claims returning to trend after the big rise the earlier week, which may have been skewed by the holiday season.

COMMENTS:

CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK:

It's always hard to read into claims this time of the year. The four-week average is still a pretty good guide of what's going on. The trend of the last three months is so clearly downward. The pace of layoffs are clearly lower. Hirings are still frustratingly slow.

The trend for claims could shift to 375,000 to 400,000 by the end of February.

I would think payrolls ought to accelerate to 150,000 from about 125,000, which could happen pretty quickly. Hirings should pick up because the mood is so much better about regulations in Washington and the end of uncertainties with taxes.

SEAN INCREMONA, ECONOMIST, 4CAST LTD, NEW YORK:

The jobless numbers look pretty positive. We saw two strong rises over the past two weeks but there is some volatility in these numbers around the holidays, but we have retraced that. The downtrend is intact, which is a positive signal for the labor market.

Claims are pointing to layoffs receding, so we just need to see the payrolls side to increase to really get this kicked into another gear.

MICHAEL O'ROURKE, CHIEF MARKET STRATEGIST AT BTIG LLC IN NEW YORK

I'm very happy about this number. I take it as a big positive. Last week's miss was big, and came when a strong seasonal adjustment should've made the number lower. So to see it snap back like this is impressive. This is where we need claims to come in if we're going to see the rally continue. I think that 400,000 is the new baseline for us to work off of, and I expect numbers to continue coming in around here. In my view, this is more important than anything else going on today, but I'm not sure that people who take a more stock-specific stance will agree and be as heartened by it as I am.

MARKET REACTION: STOCKS: U.S. stock index futures trimmed declines BONDS: U.S. Treasury bond prices added to losses FOREX: The dollar was slightly stronger against the euro

Unemployment Fall