New U.S. claims for unemployment benefits rose more than expected last week, but a decline in the four-week average to a fresh low in more than two years indicated the labor market improvement remained intact.

KEY POINTS: * Initial claims for state unemployment benefits increased 18,000 to a seasonally adjusted 409,000, the Labor Department said on Thursday, above economists' expectations for 400,000. * The prior week's figure was revised up to 391,000 from the previously reported 388,000. * The data falls outside the survey period for the government's closely watched employment report for December. * The government is expected to report on Friday that nonfarm payrolls increased 175,000 last month after November's surprisingly small 39,000 gain. * The unemployment rate is expected to have edged down to 9.7 percent from 9.8 percent in November.

COMMENTS:

HUGH JOHNSON, CHIEF INVESTMENT OFFICER, HUGH JOHNSON ADVISORS

LLC, ALBANY, NEW YORK:

They were in line with expectations so I don't think they will likely have a significant impact on markets today. Although it's an increase... and that might be troubling to some observers caught up in the week-to-week changes, the truth is that jobless claims continue to decline from the high of August -- the four-week moving average. So jobless claims tell us we're going to have ongoing improvement in employment numbers, and you should see that with the week's employment data, which should show an addition of non-farm payrolls of at least 150,000. But based on the ADP report, I would be inclined to say it's closer to 200,000.

ZACH PANDL, ECONOMIST, NOMURA SECURITIES INTERNATIONAL INC, NEW

YORK:

Claims fell in line with consensus forecasts and probably are consistent with the sort of healthy payrolls report that most forecasters are expecting for (Friday).

Claims today are overshadowed by the large surprise from the ADP report yesterday.

Markets in our view are looking for a very strong confirmation of the labor market rebound. We think tomorrow is going to be supportive of ongoing recovery and greater momentum in general in the economy.

FRANK LESH, FUTURES ANALYST AND BROKER, FUTUREPATH TRADING LLC,

CHICAGO:

It doesn't seem to be a big reaction in the market at the moment. The S&P's (futures) are holding onto gains at the moment. They maybe dropped a dollar. With the monthly due tomorrow morning that makes these all the that less important.

JAMES O'SULLIVAN, CHIEF ECONOMIST, MF GLOBAL, NEW YORK:

The net result after this week's partial reversal of last week's drop is still consistent with an improving labor market. This report comes two weeks after the December payroll survey so it should not have any direct bearings on that. We are still looking for 140,000 increase in December payrolls and upward revisions for the previous months.

Bernanke will note some labor improvement in his speech before Congress tomorrow, but it will come with the caveat that jobless rate is still very high.

MARKET REACTION: STOCKS: U.S. stock index futures pare gains briefly BONDS: U.S. Treasury bond prices add slightly to gains FOREX: The dollar holds gains

Unemployment