New claims for jobless benefits moved higher last week, but a decline in the four-week average to a nearly 2-1/2 year low indicated a trend toward better labor market conditions remained intact.

Initial claims for state unemployment benefits increased 18,000 to a seasonally adjusted 409,000, the Labor Department said on Thursday, above economists' expectations for 400,000. The prior week's figure was revised up to 391,000 from the previously reported 388,000.

The data falls outside the survey period for the government's closely watched employment report for December. The government is expected to report on Friday that nonfarm payrolls increased 175,000 last month after November's surprisingly small 39,000 gain.

The unemployment rate is expected to have edged down to 9.7 percent from 9.8 percent in November.

The net result after this week's partial reversal of last week's drop is still consistent with an improving labor market, said James O'Sullivan, chief economist at MF Global in New York.

U.S. stock index futures slightly pared gains after the claims data. The dollar also lost some of its gains against the euro.

A Labor Department official said there was nothing unusual in the state-level data and noted jobless claims were still trending lower.

The four-week moving average of unemployment claims -- a better measure of underlying trends, fell 3,500 to 410,750, the lowest level since late July 2008. Economists say this gauge needs to fall below 400,000 to signal strong jobs growth needed to reduce the lofty unemployment rate.

The spike in weekly claims does little to change perceptions the economy is now on a sustainable growth path, as flagged by sturdy data on consumer spending, trade and manufacturing.

RETAILERS SNOWED

Though several top retailers missed Wall Street's high expectations for December sales because of a paralyzing post-Christmas blizzard on the East Coast, analysts are expecting an average rise of 3.4 percent in sales for the 28 major retailers tracked by Thomson Reuters.

That would cap the best holiday season since before the recession.

The claims report also showed the number of people still receiving benefits under regular state programs after an initial week of aid fell 47,000 to 4.10 million in the week ended December 25.

That was in line with market expectations, and the prior week's number for the so-called continuing claims was revised up to 4.15 million from 4.13 million.

The number of people on emergency unemployment benefits fell 133,625 to 3.58 million in the week ended December 18, the latest week for which data is available. A total of 8.77 million people were claiming unemployment benefits during that period under all programs.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)

Unemployment Down