UPDATE 1-U.S. jobless claims drop 53,000 in latest week

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WASHINGTON, April 10 (Reuters) - The number of U.S. workers applying for unemployment benefits tumbled by a greater-than-expected 53,000 last week, but a closely watched moving average of claims was at its highest in two and a half years, a government report showed on Thursday.

Jobless claims fell to 357,000 in the week ended April 5 from an upwardly revised 410,000 in the previous week, the Labor Department said. Last week's reading is the highest since September 2005.

Analysts polled by Reuters were expecting 385,000 jobless claims in the most recent week.

However, the four-week moving average of new claims, a more reliable guide to underlying labor market trends because it smooths out weekly data fluctuation, rose to 378,250, the highest since October 2005.

Stock index futures were lower but off their worst levels following the report, which offered a glimmer of hope about labor markets.

Even so, in evidence of weak underlying labor market conditions, the number of workers remaining on jobless benefits rose to 2.94 million, the highest since July, 2004, in the week ended March 29. Analysts had estimated continuing claims at 2.93 million.

"A pullback in jobless claims is better than a surge, which is what we saw last month, but I think you have to look at the four-week average, and that still moved up and remains on the low edge of a danger zone," said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut.

A Labor Department official said the prior week's big jump was due to claims connected to manufacturing, principally automotive, industries in Indiana.