New U.S. claims for unemployment benefits fell more than expected last week and the four-week moving average hovered at two-year lows.

Initial claims for state unemployment benefits dropped 17,000 to a seasonally adjusted 421,000. The government revised the prior week's figure up to 438,000.

The four-week average of new jobless claims, considered a better measure of underlying labor market trends, fell 4,000 to 427,500, the lowest since early August 2008.

A surprisingly small gain in U.S. employment last month blurred the labor market picture but the bigger-than-expected drop in new claims for the week, and sustained drop in the four-week average, should strengthen perceptions a durable recovery is under way.

The number of people still receiving benefits under regular state programs after an initial week of aid fell 191,000 to 4.09 million in the week ended November 27 from 4.28 million the prior week.

ANALYSTS COMMENTS:

MICHAEL STRAUSS, COO AND CHIEF ECONOMIST, COMMONFUND, WILTON, CONNECTICUT:

It's another report that suggests the monthly employment numbers that we got last week probably understated the position in jobs, and it's another number that suggests we're going to get some upside surprises in economic activity. I think that will be good for equities; it will probably take away some of the overnight rebound in fixed-income securities.

We're probably most vulnerable to economic surprises in the U.S. Assuming we get the passage of a (tax) plan in Washington, we're probably looking at a situation where it wouldn't surprise me if we got either first or second quarter of next year GDP growth near 4.0 percent (annualized).

PETER BOOCKVAR, EQUITY STRATEGIST, MILLER TABAK + CO, NEW YORK:

Bottom line, the pace of firings continue to show a downward trend and hopefully now that the cost of doing business and the level of after tax incomes for at least the next 2 years are more firmly established, the hiring pace will pick up.

KATHY LIEN, DIRECTOR OF RESEARCH, GFT, NEW YORK:

Normally these numbers would be very bullish for the U.S. dollar because it would signal a recovery in jobs and imply strength in that month's non-farm payrolls report. However the reliability of jobless claims in predicting NFPs was greatly diminished by last week's non-farm payrolls report. The price action following the release of jobless claims suggests that investors are fully aware of the challenges that lie ahead for the U.S. economy.

GARY THAYER, CHIEF MACROSTRATEGIST, WELLS FARGO ADVISORS, ST. LOUIS, MISSOURI:

We're seeing better numbers suggesting the labor market is gradually improving but you need to see even better numbers to get consistent strong job growth.

Unemployment Fall