* Weekly US jobless claims higher than expected * Treasury to sell $29 bln of 7-year notes * European credit worries support prices By Chris Reese NEW YORK, April 26 (Reuters) - U.S. Treasury debt prices rose on Thursday after higher-than-expected new claims for jobless benefits in the latest week suggested the labor market continues to struggle to make any recovery. The Federal Reserve is likely to stay highly accommodative in its monetary policy as long as unemployment remains at current lofty levels above 8 percent, and the latest jobless claims data fueled the appetite for lower-risk assets like U.S. government debt. "Higher-than-expected initial jobless claims in the week ended April 21 and an upward revision to the prior week put into question the improving trend on the layoff front. It adds to concern about backsliding in job creation after faster employment gains earlier in the year," said Jonathan Basile, director of economics at Credit Suisse in New York. Benchmark 10-year notes traded 8/32 higher in price to yield 1.94 percent, down from 1.98 percent late Wednesday, while 30-year bonds were 20/32 higher to yield 3.11 percent from 3.15 percent. Treasuries began the day with support from safety bidding related to ongoing worries about contagion from the debt crisis in Europe. The yield on Spanish 10-year debt rose to about 5.86 percent, just under the 6 percent level that is seen as unsustainable. "The bid started overnight with further concerns in Europe, notably in Spain and Italy today, and has continued in the New York session with the market, notably intermediates on out, on almost a direct path higher in price," said Justin Lederer, Treasury strategist at Cantor Fitzgerald in New York. The Fed held policy steady on Wednesday and reiterated its expectation that interest rates would not rise until late 2014. Chairman Ben Bernanke said at his post-meeting news conference that he was comfortable with the central bank's policy stance, although he said it was prepared to do more to aid the U.S. economy if needed. The Treasury will sell $29 billion of new seven-year debt later in the day. A sale of $35 billion of five-year notes on Wednesday met robust demand, with strong interest from foreign central banks and other indirect bidders reflecting the ongoing appeal of safe-haven assets. Tuesday's sale of $35 billion of two-year notes was also met with solid demand. Initial claims for state unemployment benefits dropped by 1,000 in the latest week to a seasonally adjusted 388,000, the Labor Department said on Thursday. The prior week's figure was revised up to 389,000 from the previously reported 386,000. Economists polled by Reuters had forecast new claims falling to 375,000 last week.