The number of U.S. workers filing claims for jobless aid fell modestly last week as the labor market recovery struggled for momentum, while a slip in exports in April supported views of moderate economic growth.

The reports on Thursday were the latest in a series hinting the economic recovery was losing some steam but remained intact following the longest and deepest downturn in seven decades.

The economy is in for a half-speed or moderate recovery at best, said Robert Dye, senior economist at PNC Financial in Pittsburgh. Many parts of the labor market are not improving quickly at all and that looks consistent with the weak private sector jobs growth that we saw in the month of May.

Initial claims for state unemployment benefits dipped 3,000 to 456,000 last week, the Labor Department said. Economists had expected a drop to 448,000.

The labor market, the Achilles heel of the economy as it recovers from the worst downturn since the 1930s, suffered a setback in May when businesses sharply scaled back on hiring after a spurt in the prior two months.

Government data last Friday showed private payrolls only grew 41,000 after expanding 218,000 in April. Recent data such as consumer spending have also suggested a moderation in the pace of the recovery that started in the second half of last year.

Federal Reserve Chairman Ben Bernanke on Wednesday said the recovery was on a solid footing but cautioned it could be years before the jobs lost during the recession were restored.

Labor market growth is key to sustaining the economic recovery at a time when a fiscal crisis in Europe is threatening the global recovery and domestic exports.

A report from the U.S. Commerce Department on Thursday showed the trade deficit edged up to $40.3 billion in April from $40 billion from March as exports fell. Markets had expected a gap of $41.0 billion.

EXPORTS FALL

The slightly wider trade deficit reflected a 0.7 percent drop in exports in April after a surge in March. Imports dipped 0.4 percent. Exports had risen most months since hitting a trough in April 2009, when world trade was still reeling from the effects of the global financial crisis.

The politically sensitive trade gap with China widened 14.3 percent in April to $19.3 billion, raising pressure on Beijing to adopt a flexible exchange rate.

U.S. Treasury Secretary Timothy Geithner sharply criticized China's exchange-rate policies and said a stronger yuan was critically important for the world economy to achieve balanced growth.

Analysts said the fall in exports in April was unrelated to the debt crisis in Europe, and predicted only limited impact on export growth from the austerity measures adopted by some governments in the region to slash huge budget deficits.

The crisis in Europe didn't really escalate until May. Instead, the fall (in exports in April) most probably reflects the normal volatility of the monthly data, said Paul Dales, a U.S. economist at Capital Economics in Toronto.

The problems in Europe are likely to have only a very modest impact on U.S. activity. That said, a more widespread slowdown in global growth and the stronger dollar will push the U.S. trade deficit wider next year, he said.

CHINA'S EXPORTS BOOMING

Europe's fiscal woes appear not to have had an impact on global trade yet. China's total exports rose 48.5 percent in May from a year earlier and imports were up 48.3 percent, giving China a trade surplus of $19.5 billion, up from just $1.7 billion in April.

The boom in China's exports eased concerns about the global recovery and helped spark a rally on Wall Street. Prices for U.S. government debt slipped, while the dollar fell against the euro for a third straight day.

U.S. labor market weakness was highlighted by the four-week moving average of new claims, considered a better measure of underlying labor market trends. The average rose 2,500 to 463,000.

Unemployment insurance claims have been hovering all year above levels analysts view as consistent with sustainable job growth, suggesting unemployment will likely remain high for a while, piling pressure on President Barack Obama.

Public disenchantment over a near 10 percent unemployment rate and the slow pace of the economic recovery are weighing on Obama's approval ratings and threaten the Democratic Party's control of Congress in November's mid-term elections.

Businesses feel better than they did at the height of the recession, but they are not completely comfortable to stop layoffs. We need job growth to bring about income growth and support households, said Andrew Gledhill, an economist at Moody's Economy.com in West Chester, Pennsylvania.

With the jobs markets still under severe stress, U.S. lenders repossessed homes at a record pace in May, another report showed on Thursday.

A stock market rally helped to lifted household wealth by $1.1 trillion in the first quarter, Federal Reserve data showed, but recent steep declines in share prices suggest a reversal in the second quarter is likely.

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Jobless claims graphic: http://link.reuters.com/ryr39k

Trade balance graphic: http://link.reuters.com/zes39k

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(Additional reporting by Doug Palmer, David Lawder and Emily Kaiser in Washington and Lynn Adler in New York)

China Ben Bernanke Unemployment Timothy geithner