By Lucia Mutikani
WASHINGTON (Reuters) - The number of Americans filing new claims for unemployment benefits fell more than expected last week, indicating the labor market was strengthening despite a run-up in applications in prior weeks.
Initial claims for state unemployment benefits declined 26,000 to a seasonally adjusted 319,000 for the week ended May 3, the Labor Department said on Thursday.
The decline snapped three straight weeks of increases that were driven by difficulties adjusting data during the Easter and Passover holidays and school spring breaks, which fall on different calendar days every year.
"Claims, in conjunction with (last) Friday's employment number, show that we continue to see an incremental improvement in the labor market," said Ron Sanchez, director of fixed income strategies at Fiduciary Trust Company International in New York.
Economists had forecast first-time applications for jobless benefits falling to 325,000 last week.
The four-week moving average for new claims, considered a better measure of underlying labor market conditions as it irons out week-to-week volatility, rose 4,500 to 324,750. It remained at levels consistent with an improving labor market.
U.S. stocks were trading higher, while the dollar firmed against a basket of currencies. Prices for U.S. government debt were marginally up.
LABOR MARKET FIRMING
The labor market is firming with employment growth averaging more than 200,000 jobs per month in the first four months of the year. Employers in April added 288,000 jobs to their payrolls, the most since January 2012.
The unemployment rate dropped to 6.3 percent last month, compared to 6.7 percent at the end of 2013. The decline has also been aided by people dropping out of the labor force.
Federal Reserve Chair Janet Yellen said on Wednesday conditions in the labor market had improved "appreciably," but she added they remained still far from satisfactory.
The U.S. central bank has been scaling back its monetary stimulus and is expected to conclude its monthly bond-buying program by the end of 2014. But the Fed is not expected to start raising overnight interest rates, currently near zero, before the second half of 2015.
Economists said starting May with a downward trajectory in claims raised the chances of another month of job gains above the 200,000 threshold.
"In fact, we expect the level of filings to fall back to the 300,000 mark within the next few weeks, which will be broadly consistent with the economy creating jobs in the 200,000 to 225,000 range on a sustained basis," said Millan Mulraine, deputy chief economist at TD Securities in New York.
The claims report showed the number of people still receiving benefits after an initial week of aid fell 76,000 to 2.69 million in the week ended April 26. The unemployment rate for people receiving jobless benefits fell one-tenth of a percentage point to 2 percent during the same period.
It had been bouncing around 2.2 percent since last August and covers people unemployed for less than 26 weeks.
"The drop suggests that the trend in the short-term unemployment rate continues to be downwards," said John Ryding, chief economist at RDQ Economics in New York.
(Reporting by Lucia Mutikani; Editing by Paul Simao)