The number of Americans filing new claims for unemployment benefits unexpectedly fell last week to a near four-year low, suggesting the labor market recovery was gaining steam.

Other government data on Thursday also pointed to sustained momentum in the economy, with builders breaking more ground on new residential projects in January and little signs of a pick-up in inflation pressures.

The job market is getting better and that's really key. We're still in the early innings of this but I'm glad to see another data point that adds to the picture of an improving economy, said Kevin Caron, market strategist at Stifel, Nicolaus & Co in Florham Park, New Jersey

Initial claims for state unemployment benefits dropped 13,000 to a seasonally adjusted 348,000, the Labor Department said, the lowest level since March 2008.

Economists polled by Reuters had forecast claims rising to 365,000. The four-week moving average for new claims, seen as a better measure of labor market trends, fell 1,750 to 365,250 - the lowest since April 2008.

In a separate report, the Commerce Department said housing starts rose 1.5 percent to an annual rate of 699,000 units last month, beating economists' expectations for a 675,000-unit pace.

Starts were boosted by multi-unit buildings, reflecting growing demand for rental apartments as Americans move away from homeownership. Permits for future home construction rose 0.7 percent to a 676,000-unit pace in January.

U.S. stock index futures and crude oil futures pared losses after the data. The dollar rose against the yen, and U.S. Treasuries prices rose modestly.

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Graphic on jobless claims: http://link.reuters.com/dun66s

Graphic on producer prices: http://link.reuters.com/kun66s

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FIRMER DATA

Thursday's reports added to a raft of solid data that has prompted analysts to now expect only a mild slowdown in growth in the first quarter. They have also dialed down their expectations for another round of bond-buying or quantitative easing by the Federal Reserve.

The data from employment, manufacturing and retail sales have also raised doubts on whether the U.S. central bank will keep it's pledge to hold interest rates at ultra low levels until at least through 2014.

Minutes of the Fed's January 24-25 meeting released on Wednesday showed a few policymakers believed a third round of quantitative easing would be needed this year to support the U.S. economy.

Last week's drop pushed claims below the 350,000 level that economists normally associate with sustained strength in the labor market. New jobless claims have declined for three straight weeks.

Job gains have exceeded 200,000 for two straight months and the unemployment rate dropped to a three-year low of 8.3 percent in January.

But considerable slack still remains, with 23.8 million Americans either out of work or underemployed. There are no job openings for nearly three out of every four unemployed.

The number of people still receiving benefits under regular state programs after an initial week of aid tumbled to its lowest level since August 2008.

In a second report, the Labor Department said prices received by farms, factories and refineries edged up 0.1 percent in January as food and energy costs fell. Wholesale prices dipped 0.1 percent in December.

But producer prices excluding food and energy rose 0.4 percent last month, the largest gain since July, after increasing 0.3 percent in December.

While I am bullish on the economy I don't see growth getting away from us enough to the point where it becomes inflationary any time soon, said David Coard, head of fixed income sales and trading at the Williams Capital Group in New York.

Wholesale prices outside of food and energy were pushed up by a drugs costs, which accounted for about 40 percent of the increase. Higher prices for light motor trucks and household appliances also contributed.

(Additional reporting by Jason Lange; Editing by Neil Stempleman)

Quantitative easing Unemployment Inflation