The number of U.S. workers filing new applications for unemployment benefits fell last week, while productivity was stronger than initially thought in the fourth quarter, boosting hopes for the economic recovery.

Initial claims for state unemployment benefits dropped 29,000 to a seasonally adjusted 469,000, the Labor Department said on Thursday. That was in line with market expectations.

Separately, the department said non-farm productivity rose at a 6.9 percent annual rate rather than the 6.2 percent pace it estimated last month. The increase in productivity, which measures hourly output per worker, was above market expectations for a 6.3 percent rate.

Firing activity has largely tapered off, but new hiring has yet to pick up. Firms are still squeezing productivity out of the current workforce and are reluctant to add new hires, said Zach Pandl, an economist at Nomura Securities International in New York.

U.S. stock index futures were flat after the data, while Treasury debt prices were little changed. The U.S. dollar held gains against the euro.

Initial claims data in recent weeks has been distorted by bad weather, making it difficult to gauge the labor market trend, but a Labor Department official said there were no special factors for the latest numbers.

Severe snowstorms hammered much of the country last month, keeping some workers at home as some areas came to a standstill. That will act as a drag on the government's closely watched employment report for February, scheduled for release on Friday, analysts said.

According to a Reuters survey, nonfarm payrolls are forecast to have fallen 50,000 last month after slipping 20,000 in January.

We think we are on the cusp of a hiring recovery, it's just a question of when, said Pandl.

The labor market is being anxiously watched to see whether the economy's recovery from the worst downturn since the 1930s will be sustained when support from government stimulus and the rebuilding of inventories fade later this year.

PRODUCTIVITY SURGES

Even as the economy buckled from the downturn, productivity has expanded for seven straight quarters as employers cut their workforce to hold costs down.

Some analysts believe companies cannot continue to boost output without starting to hire new workers. However, others reckon companies will hold off new hires, while gauging the strength of the economic recovery and instead opt to extend working hours and make temporary workers permanent staff.

Unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, fell more steeply than previously thought. Costs fell 5.9 percent instead of 4.4 percent, after declining 7.6 percent in the third quarter.

Analysts had expected unit labor costs to fall 4.4 percent in the fourth quarter. Compared to a year ago, unit labor costs were down a record 4.7 percent.

There were encouraging signs in the claims report, with the four-week moving average of new claims -- which irons out week-to-week volatility -- falling 3,500 to 470,750.

The number of people still receiving benefits after an initial week of aid dropped 134,000 to 4.5 million in the week ended February 20, the lowest since early January 2009. This measure peaked in June last year and has been steadily declining.

The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, slipped to 3.5 percent in the week ended February 20 from 3.6 percent.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama )

Unemployment Fall