The number of Americans filing new claims for jobless benefits fell last week, but other data on home sales and regional factory activity suggested the economy remained on a moderate growth path.

Initial claims for state unemployment benefits fell 29,000 to a seasonally adjusted 409,000, the Labor Department said on Thursday, continuing to unwind the prior weeks' spike.

Though the drop exceeded economists' expectations for a fall to 420,000, claims stayed above the 400,000 level that is normally associated with stable job growth for a sixth straight week.

The data covered the survey period for the government's closely watched employment report for May, which will be released early next month.

Jobless claims are still at levels consistent with moderate job growth and little progress in bringing unemployment down, said Avery Shenfeld, chief economist at CIBC World Markets in Toronto.

A second report showed factory activity in the nation's Mid-Atlantic region slowed sharply in May. The Philadelphia Federal Reserve Bank said its business activity index slumped to 3.9 from 18.5 in April.

Economists had expected a reading of 20. A reading above zero indicates expansion in the region's manufacturing.

We're probably past the peak in regard to manufacturing activity, but we don't think manufacturing activity is stopping. We just think it is slowing a bit, said Tom Porcelli, a U.S. economist at RBC Capital Markets in New York.

Separately, sales of previously owned homes fell 0.8 percent last month to an annual rate of 5.05 million units, the National Association of Realtors said. Economists had expected sales to rise to a 5.2 million unit-rate.

The factory and housing reports were the latest to suggest the economy struggled to regain momentum as the second quarter started. Manufacturing has been leading the recovery and economists still expect the trend to continue.

U.S. stocks pared gains and were last trading flat, while prices for government debt trimmed losses. The dollar fell against the euro and cut gains against the yen.

The four-week moving average of unemployment claims, a better measure of underlying trends, rose 1,250 to 439,000 - the highest level since mid-November.

The recent jump in claims, blamed on auto layoffs because of supply chain disruptions from March's Japanese earthquake and problems with adjusting data for seasonal variations, had raised fears of a pull-back in the pace of job creation.

Employers added 244,000 jobs in April, the most in 11 months. However, the unemployment rate rose to 9 percent from 8.8 percent in March.

A Labor Department official said only one state or territory, the Virgin Islands, had been estimated, indicating the report was largely clear of distortions.

The number of people still receiving benefits under regular state programs after an initial week of aid fell 81,000 to 3.71 million in the week ended May 7.

Economists had expected so-called continuing claims to fall to 3.72 million from a previously reported 3.76 million.

The number of people on emergency unemployment benefits increased 53,398 to 3.47 million in the week ended April 30, the latest week for which data is available. A total of 7.94 million people were claiming unemployment benefits during that period under all programs.

(Reporting by Lucia Mutikani, Ann Saphir and Rachelle Younglai; Editing by Andrea Ricci)

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