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UPDATE 2-Obama signs bill aiding long-term unemployed

* Long-term jobless aid program extended through November

* Labor Department says weekly unemployment claims surge (Updates with Obama signing the bill )

WASHINGTON, July 22 (Reuters) - President Barack Obama on Thursday signed a bill to restore aid for about 2.5 million jobless Americans after being handed a setback in his fight against unemployment when initial claims for benefits surged.

Obama signed the benefits bill for the long-term unemployed just a hours after the U.S. House of Representatives passed it on a vote of 272-152. The Democratic-led Congress passed the bill after the Senate on Wednesday ended a weeks-long partisan stalemate over the $34 billion cost of the measure and its impact on deficits and the economy.

“Americans who are fighting to find a good job and support their families will finally get the support they need to get back on their feet during these tough economic times,” Obama said in a statement.

Before Congress cleared the jobless aid bill, the Labor Department reported that initial claims for state unemployment benefits surged by 37,000 to a seasonally adjusted 464,000 last week.

Financial markets had forecast claims rising to 445,000.

The report provided little hope to Obama and his fellow Democrats of an improving jobs market ahead of the Nov. 2, congressional election.

Slow job creation in the tepid economic recovery, where five unemployed workers are vying for each job opening, is worrying voters, giving Republicans an edge in their bid to win control of Congress from the Democrats.

The unemployment rate stood at 9.5 percent last month and economists say it could take years to recover all the jobs lost in the financial crisis and recession.

In normal times, benefits expire after 26 weeks, but after the recession hit in late 2007, Congress expanded the program to cover up to 99 weeks of benefits.

The bill approved on Thursday continues the long-term jobless aid program through November and retroactively restores benefits for about 2.5 million long-term unemployed whose payments ran out since the program expired at the end of May.


“This action should have occurred two months ago,” said House Ways and Means Committee Chairman Sander Levin, a Democrat, who blamed Senate Republicans for delaying final passage.

“They stood not on the side, but in the way of millions of Americans and during those six weeks over 2.5 million unemployed Americans exhausted their benefits and struggled to stay afloat while continuing to look for work in this difficult economy,” Levin added.

Nearly half of the 15 million Americans out of work have been jobless for more than six months, the highest level of long-term unemployment since the government began keeping track in the 1940s. Nearly a quarter of the unemployed have been out of work for more than a year.

The $1.4 trillion deficit and more than $13 trillion debt are also major issues in the run-up to November and Republicans argued that the benefit extension should be paid for with unspent money from the economic stimulus that Congress passed last year.

“Instead of supporting this economy and getting Americans back to work, jobs have been lost, our debt continues to spiral out of control and the Democrats’ only solution is to add $34 billion in new spending,” said Representative Charles Boustany.

Democrats argued the $34 billion in emergency aid to the unemployed will be spent quickly and help boost the fragile economic recovery.

Reporting by Donna Smith; Editing by David Storey and Sandra Maler