Jobless claims surge, spending softens

By Joanne Morrison

WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless aid surged last week to the highest since October 2005, and consumer spending softened at the end of last year, according to reports on Thursday that heightened worries about a possible U.S. recession.

Wall Street reacted with surprise to the unexpectedly big jump in jobless claims, but analysts were waiting for a report on January employment due on Friday to get a sense whether the already weak economy had taken a turn for the worse. That report is expected to show a modest gain in new jobs.

U.S. stock markets initially fell on Thursday's data but the Dow Jones Industrial Average closed up more than 200 points, but yields on U.S. Treasury bonds ended the day lower.

The number of U.S. workers filing new claims for state unemployment benefits rose by 69,000 last week to 375,000, the Labor Department said. It was the biggest jump since September 2005 after Hurricane Katrina hit the U.S. Gulf Coast.

However, the department cautioned that the data may have been skewed because of the Martin Luther King Jr. Day holiday, and analysts agreed, even though many thought the underlying trend in jobless claims might be moving higher.

"It is highly unlikely that today's initial claims reading reflects reality," said Omair Sharif, an economist at RBS Greenwich Capital in Greenwich, Connecticut.

Two other reports out on Thursday also painted a weak labor market picture. An index from the Conference Board that measures the number of help-wanted adds in U.S. newspapers rose modestly in December to 22 from 21, but it was down dramatically from a reading of 33 a year ago.

In addition, demand for hiring fell in January, according to the online recruiting firm Monster Worldwide. The firm's employment index fell to 160 in January from 169 in December.