* Weekly jobless claims fall 4,000
* Continuing claims increase unexpectedly
* Import prices rise on energy, ex-petroleum up modestly (Recasts with details, updates markets, adds byline)
By Lucia Mutikani
WASHINGTON, May 13 The number of U.S. workers filing for jobless benefits fell only slightly last week, suggesting the unemployment rate will remain elevated even as recovery in the labor market becomes entrenched.
Initial claims for state unemployment aid slipped 4,000 to 444,000 in the week to May 8, the Labor Department said on Thursday, maintaining this year's very modest downward trend even as other job market indicators show major improvement.
Economists said the puzzling stickiness in claims, which they had expected to dip to 440,000, underscored the challenges the labor market confronts as it heals from the severe beating it took during the worst recession since the 1930s.
"The labor market is clearly improving, but it has a long, long way to go before it gets to any semblance of normalcy," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York.
In a second report, the department said import prices increased 0.9 percent last month on higher petroleum costs after rising 0.5 percent in March. However, excluding the volatile petroleum category, prices were up only 0.3 percent, suggesting little inflationary pressure.
"In spite of higher commodity costs, prices for imported finished goods appear sluggish, suggesting firms' pricing power remains limited," said Anna Piretti, an economist at BNP Paribas in New York.
Although initial jobless claims are falling only slowly, other measures of the labor market -- including the government's closely watched monthly employment count -- suggest job growth is gaining steam as businesses become more confident of the strength of the economic recovery.
Data released last Friday showed payrolls grew by 290,000 in April, the biggest gain in four years, but the unemployment rate climbed to 9.9 percent from 9.7 percent in March.
The improving labor market tone helped retailer Kohl's Corp (KSS.N) post an 11 percent increase in net sales in the second quarter and the group's chief executive noted consumers were getting a little more confident. For more see [ID:nN13258880].
The economy has grown for three straight quarters and while employment has risen for four months in a row some economists worry that the slow improvement in claims, if sustained, could signal slower job growth ahead.
"It's a little bit troubling, it gives us some pause that perhaps we won't see jobs (growth) of the same magnitude (as in April) going forward," said Andrew Gledhill, an economist at Moody's Economy.com in West Chester, Pennsylvania.
"In the past recessions, when claims have been at these levels, we have not seen job gains of that magnitude."
Though claims continue to grind lower, the number of people still receiving jobless benefits after an initial week of aid unexpectedly rose 12,000 to 4.63 million in the week ended May 1, the department said.
With unemployment still high and inflation pressures muted, the Federal Reserve -- the U.S. central bank -- should be able to keep to its promise of ultra-low interest rates for an extended period, according to analysts.
Fed Vice Chairman Donald Kohn said on Thursday that the Fed's massive addition of reserves to the banking system, undertaken to combat the financial crisis, was unlikely to prove inflationary. [ID:nN13269195]
The tame inflation outlook was underscored by the mild rise in nonpetroleum import prices, which were up 3.3 percent in the 12 months through April.
Analysts generally expect U.S. dollar strength and excess capacity in the global economy to keep a lid on prices of imported merchandise, excluding petroleum.
The department also said U.S. export prices rose 1.2 percent in April, building on the prior month's 0.7 percent advance. In the 12 months through April, export prices increased 5.7 percent, the largest gain since July 2008.
Separately, in another positive sign for the economy, lenders initiated far fewer new actions against struggling U.S. homeowners last month, RealtyTrac said on Thursday.
April foreclosure filings fell 9 percent from March and 2 percent from a year ago, the first year-over-year drop since RealtyTrac started tracking annual foreclosure rates in January 2006.
However, banks took control of a record 92,432 properties in April, up 1 percent from a month earlier and 45 percent from a year ago.
The housing market remains fragile but is getting support from low borrowing costs. U.S mortgage rates dropped below 5 percent in the week ended May 13, the lowest level in five months. [ID:nN13104076]
U.S. jobless claims graphic: r.reuters.com/kyz83k
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ (Additional reporting by Lynn Adler and Phil Wahba in New York and Louise Egan in Ottawa; Editing by James Dalgleish)