WRAPUP 4-U.S. job market, factory data show weakness

* Initial weekly jobless claims rise to 428,000

* Aug CPI rises 0.4 pct, core up 0.2 pct

* U.S. industrial output up 0.2 pct in August

* New York, Mid-Atlantic area factories lackluster
(Updates with comments from CEOs and default notices)

By Jason Lange

WASHINGTON, Sept 15 (Reuters) - New claims for U.S. jobless
aid rose unexpectedly last week and factory activity along much
of the Eastern seaboard contracted early this month, bolstering
the case for more action to support the struggling economy.

However, industrial output edged higher in August and
consumer prices rose more than expected, reinforcing
expectations the Federal Reserve will offer only modest
stimulus measures.

The U.S. economy barely grew in the first half of this year
and a bruising spending battle in Congress spooked consumers
into shutting their wallets last month. With growth still
limping along, the economy looks very vulnerable to an
escalation in Europe's debt crisis.

"Business activity has slowed and confidence has fallen ...
but we haven't slipped into a recession yet," said Michelle
Meyer, an economist at Bank of America Merrill Lynch in New
York. "The Fed can still do some additional easing."

The number of Americans filing new claims for state
unemployment aid rose unexpectedly to 428,000 in the week ended
Sept. 10, the Labor Department said on Thursday.

It was the second straight weekly increase, taking initial
claims to their highest level since the week ended June 25.
Wall Street analysts expected a modest dip.

Despite the data, U.S. stocks rose and debt prices fell
after a plan was offered by global central banks to reintroduce
dollar liquidity into the strained European banking system.

Peter Kenny, managing director of Knight Capital in Jersey
City, New Jersey, said much of the data was bad but not
"apocalyptic," and other analysts agreed.

The Philadelphia Federal Reserve Bank said its business
activity index registered minus 17.5 in September, an
improvement from August but still pointing to contraction for
the second straight month.

The New York Federal Reserve Bank said its manufacturing
index for New York state fell to minus 8.82 in September -- its
lowest level since November. It was the fourth straight month
pointing to contraction.

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INSTANT VIEW jobless claims: [ID:nS1E78E09H]

INSTANT VIEW Philadelphia Fed: [ID:nS1E78E0LL]

Graphic for industrial output: r.reuters.com/fer73s

Graphic for CPI: r.reuters.com/var73s

Graphic for jobless claims: r.reuters.com/qar73s
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FED TO THE RESCUE

The data could provide an added sense of urgency for Fed
Chairman Ben Bernanke and his colleagues, who are expected to
unveil new measures to lift growth when a two-day policy review
concludes on Wednesday.

Despite dim prospects of the nation's 9.1 percent
unemployment rate coming down much any time soon, many Fed
watchers expect a relatively modest step to try to bring down
long-term interest rates without ramping up dollar printing.

The unexpectedly stiff reading on inflation could provide
fodder for a lively central bank debate.

The Labor Department said in a separate report that its
Consumer Price Index increased 0.4 percent last month -- higher
than analysts expected, with food prices posting their biggest
gain since March.

"It will make it more difficult for the Fed to talk about
lower rates, even if the economy needs it," said Subodh Kumar,
chief investment strategist at Subodh Kumar & Associates in
Toronto.

The core price index -- which excludes food and energy --
rose 0.2 percent last month, in line with expectations. Both
the overall and core readings in August rose more from a year
earlier than they did in July.

Analysts now put the odds of a new U.S. recession at nearly
one-in-three after recent reports showed no employment growth
in August and a plunge in consumer confidence. Consumer
spending ground to a halt in August as well.

In its report on output at the nation's mines, factories
and utilities, the Fed said manufacturing production rose 0.5
percent last month as auto production picked up.

Underscoring the consensus view the U.S. will dodge the
recession bullet, General Electric Co (GE.N) Chief Executive
Jeff Immelt said he sees "good, decent economic growth
everywhere," including the United States. For details, see
[ID:nS1E78E0HV]

Still, few expect growth to hum until consumers can heal
personal finances damaged by the popping of a housing bubble
and subsequent 2007-2009 financial crisis.

Default notices on U.S. homes notched their biggest monthly
increase in four years in August, a report by RealtyTrac said.

Weak consumers are keeping businesses on edge.

"The last few months, we've seen a bumpy ride that may
likely continue," said United Parcel Service (UPS.N) Chief
Executive Scott Davis, despite his affirmation that the package
delivery company was on track for record results this year.
(Additional reporting by David Lawder in Washington, Leah
Schnurr and Gertrude Chavez-Dreyfuss in New York and Lynn Adler
in Louisville, Kentucky; Editing by Neil Stempleman)