New U.S. claims for unemployment insurance fell more than expected last week, government data showed on Thursday, while the number of people continuing to receive benefits in the final week of June was the lowest in seven months.

Initial claims for state unemployment benefits dropped 21,000 to a seasonally adjusted 454,000 in the week ended July 3, the lowest level since early May, the Labor Department said.

Analysts polled by Reuters had expected claims to fall to 460,000 from the previously reported 472,000, which was revised up to 475,000 in Thursday's report.

The four-week moving average of new jobless claims, seen as a better measure of underlying labor market trends, fell 1,250 to 466,000.

Although a Labor Department official said there was nothing unusual in the report, the decline in claims could have been exaggerated by the fact that General Motors is limiting its annual summer plant shutdown.

General Motors announced last month that nine of its 11 domestic assembly plants would continue operating during the June 28 to July 9 shutdown to meet demand for some models.

Automakers use the summer shutdowns to complete the annual model changeover and support maintenance operations, and analysts have cautioned that this might distort claims data over the coming weeks and make it difficult to get a clear pulse of the jobs market's health.

A sluggish labor market is blunting the economy's recovery from the longest and deepest recession since the 1930s. High unemployment is putting a damper on spending, fanning fears among investors the economy could fall back into recession.

Last month, private hiring rose by 83,000 after rising only 33,000 in May, the government said on Friday. But total non-farm employment dropped 125,000 as the government laid off 225,000 temporary census workers.

Although layoffs have abated, claims for jobless benefits have not declined significantly this year, and analysts say this implies only a gradual labor market improvement.

The number of people still receiving benefits after an initial week of aid dropped 224,000 to 4.41 million in the week ended June 26, the lowest since November last year, the Labor Department said. The level was way below market expectations for 4.60 million.

The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, fell to 3.4 percent in the week ended June 26 from 3.6 percent the prior week.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Unemployment