The U.S. labor market recovery continues to gain momentum, as new claims for unemployment benefits dropped to a three-and-a-half year low last week.

A government report revealed Thursday that initial claims for unemployment dropped 19,000 to a seasonally adjusted 366,000, according to the U.S. Labor Department. That's the lowest level since May 2008.

Reuters said that economists polled expected claims to rise to 390,000. Analysts believe that 350,000 is a sign of labor market strength, so the dip is viewed positive. U.S. stocks were poised to rise on the news, as futures were up Thursday. The Dow Industrial futures were up 0.6 percent, to 11,385, while the S&P 500 futures were up 0.7 percent to 1,214, and the NASDAQ futures rose 0.7 precent to 2,243.

The U.S. economy is showing signs of improvement as countries in the Eurozone continue to deal with a debt crisis threatening to throw the region into another economic recession. But in America, unemployment is creeping lower, to 8.6 percent in November, and wholesale inventories are rising, another bullish sign.

But the threat of Europe's financial crisis drifting overseas, slowing the U.S. recovery, remains. The Federal Reserve noted this week that Europe debrt crisis remains a threat to the U.S. economy which it said is expanding moderately.

According to Reuters, the four-week moving average of claims fell to 6,500 to 387,750, the lowest since July 2008. Many view the four-week average as a better gauge. It's still above the 350,000 viewed as the sign of a strong labor market, but it's vastly improved from the past two years.

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