The number of Americans filing for jobless aid hit a two-month high last week and more applications were received in the prior week than initially reported, suggesting a cooling in the labor market recovery.

Initial claims for state unemployment benefits increased 13,000 last week to a seasonally adjusted 380,000, the Labor Department said on Thursday, defying economists' expectations of a drop to 355,000. The prior week's count was revised to show 10,000 more applications than previously reported.

While economists cautioned against reading too much into the report, saying problems adjusting the data for seasonal fluctuations around Easter may have pushed last week's figure higher, they said it nonetheless provided a worrying signal.

It certainly bolsters the view that things are starting to slow down, said Tim Quinlan, an economist at Wells Fargo Securities in Charlotte, North Carolina.

The data comes in the wake of a report on Friday that showed the economy created only 120,000 jobs last month, the fewest since October. The unemployment rate fell to a three-year low of 8.2 percent, but largely as people gave up the search for work.

Economists noted that initial claims tend to be volatile at this time of year due to shifts in the timing of Easter and school spring breaks, making it difficult for the Labor Department to adjust the data for seasonal variations.

Claims have risen in nine of the last 11 Easter holiday weeks and have over the past year tended to increase in the first full week of a quarter.

We're also getting some payback for a mild winter. Mild temperatures kept construction workers on the payrolls and that is causing some issues with the seasonal adjustment as well, said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

The increase caught our attention, but the next few weeks will be very telling. If claims continue to tick higher then it will be a signal that the sword over the jobs market is real. For now we take this report with a grain of salt.

The four-week moving average for new claims, considered a better measure of labor market trends, rose moderately.

TRADE GAP NARROWS SHARPLY

Stocks on Wall Street ended more than 1 percent higher as investors focused on a decline in yields of some euro zone government bonds and hopes that China will report strong first-quarter growth on Friday.

U.S. Treasury debt prices lost some of their safe-haven appeal and fell, while the dollar weakened broadly.

Away from the labor market, there was some good news for the U.S. economy.

A report from the Commerce Department showed the nation's trade gap shrank 12.4 percent to $46 billion in February as exports hit a record high. It was the biggest month-to-month decline in the trade shortfall since May 2009.

The shrinking of the deficit prompted economists, including those at Goldman Sachs, to lift their estimates for first-quarter economic growth. Goldman Sachs now see U.S. gross domestic product expanding at a 2.5 percent annual pace instead of 2.3 percent estimated previously.

The economy grew at a 3 percent rate in the fourth quarter.

A third report showed little sign of inflation pressures. The Labor Department said prices received by U.S. producers were unchanged in March after advancing 0.4 percent in February, while wholesale prices excluding volatile food and energy costs rose 0.3 percent.

That should allow the Federal Reserve to keep interest rates ultra low and even embark on a third round of asset purchases, or quantitative easing, should job growth completely stall.

New York Federal Reserve Bank President William Dudley said on Thursday the U.S. central bank was gathering more data to determine whether last month's weak employment report was just a weather-related setback or a sign the recovery is losing momentum again.

The somewhat softer March labor market report that was released last Friday may reflect the earlier positive influence of the mild weather on job creation in January and February, although other less-sanguine interpretations are also plausible, he said.

Last month, over one-third of the rise in the core Producer Price Index was attributed to rising costs for light trucks. Higher prices for passenger cars, soaps and detergents also contributed to the advance.

In the 12 months through March, wholesale prices rose 2.8 percent, the smallest increase since June 2010, after advancing 3.3 percent in February.

Price pressures have eased but are not gone because of recession in Europe and slowing output growth in China, said Michael Montgomery, a U.S. economist at IHS Global Insight in Lexington, Massachusetts.

(Additional reporting by Doug Palmer; Editing by Dan Grebler)

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