The number of U.S. workers filing new claims for jobless insurance fell more than expected last week to a 10-month low, government data showed on Thursday, pointing to a gradual improvement in the labor market.

Initial claims for state unemployment benefits dropped 20,000 to a seasonally adjusted 512,000 in the week ended October 31, the lowest since early January, the Labor Department said. New jobless claims had bounced around the 520,000-532,000 range over the previous four weeks.

Analysts polled by Reuters had forecast new claims slipping to 523,000 last week from a previously reported 530,000.

While new applications for unemployment insurance have substantially fallen from March's high levels, they remain elevated and analysts say they need to drop below 400,000 to signal that the economy is creating jobs.

The four-week moving average for new claims slipped 3,000 to 523,750 last week, also the lowest in almost 10 months and declining for the ninth week in a row, indicating the labor market continues to edge toward stability.

The four-week moving average is considered a better gauge of underlying trends as it irons out week-to-week volatility.

The Labor Department is expected to report on Friday that the decline in employment is slowing. Analysts have forecast that payrolls fell 175,000 in October, compared with a decline of 263,000 in September.

Some healing of the labor market is crucial to sustaining and strengthening the economy's recovery after its worst recession in 70 years. The economy grew in the third quarter for the first time in more than a year, driven largely by the government's stimulus program.

There were further signs of labor market improvement, with the number of people collecting long-term unemployment benefits dropping 68,000 to 5.75 million in the week ended October 24, the lowest since March.

So-called continuing claims have stayed below the 6 million mark for a third successive week. The decline is likely both the result of fewer new applications for unemployment benefits and many jobless workers exhausting their benefits.

The four-week moving average of continuing claims dropped 79,500 to 5.89 million. The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, was unchanged at 4.4 percent in the week ended October 24.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)

Unemployment Fall