Jobless claims post surprise rise

New jobless claims rose last week to their highest since June and a gauge of New York State manufacturing contracted in September, sustaining the view the Federal Reserve could take new action to boost growth.

At the same time, consumer prices rose a surprisingly steep 0.4 percent in August, slowing only slightly from the previous month's rate.

The number of Americans filing new claims for jobless benefits rose unexpectedly to 428,000 in the week ending September10, the Labor Department said on Thursday.

It was the second straight week in which claims rose. Wall Street analysts expected a modest dip in new claims.

Separately, the New York Fed's Empire State general business conditions index fell to minus 8.82 in September from minus 7.72 the month before.

Overall we see that activity is slowing down, said Michelle Meyer, an economist at Bank of America Merrill Lynch in New York. But we haven't slipped into a recession yet.

Stock index futures pared gains after the data, while Treasury debt took back some losses. The dollar rose versus the yen.

The jobs data could provide an added sense of urgency for Federal Reserve Chairman Ben Bernanke and other policymakers, who plan to take extra day at their policy review next week to deliberate their options. Many economists expect the central bank will unveil new measures to boost growth next Tuesday.

But despite dim prospects of America's 9.1 percent unemployment rate coming down much anytime soon, many Fed watchers expect a relatively modest stimulus plan that would try to bring down long-term interest rates without ramping up dollar printing.

The Labor Department said its Consumer Price Index increased 0.4 percent last month, after rising 0.5 percent in July.

The reading was higher than analysts' forecasts of a 0.2 percent rise, with food prices posting their biggest gain since March.

Core CPI -- which excludes food and energy -- rose 0.2 percent after rising at the same rate in July. Last month's gain was in line with economists' expectations.

Given limited pricing power for producers as consumers grapple high unemployment, inflation is not regarded as a big threat now for an economy which barely grew in the first half of the year.

The core index was held back by new auto costs, which were unchanged for the second straight month. New car prices had risen relatively sharply in May following a March earthquake disaster in Japan that disrupted global supply chains.

Analysts now put the odds of a new recession at nearly one-in-three after recent reports showed no employment growth in August and a plunge in consumer confidence. Data on Wednesday showed consumer spending ground to a halt in August as well.

Investors are also awaiting data later in the morning on manufacturing in the Mid-Atlantic from September after the index, which is kept by the Philadelphia Federal Reserve Bank, plunged last month. That drop did a lot to fuel fears of a recession, as did a spending battle in Congress that slammed stock shares and nearly left the government unable to pay its bills.

(Additional reporting by Leah Schnurr in New York; Editing by Andrea Ricci)