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The number of Americans filing new claims for unemployment benefits fell unexpectedly last week, touching a 5-1/2 year low, suggesting a steadily improving labor market.



Initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 326,000, the lowest level since January 2008, the Labor Department said on Thursday. Claims for the prior week were revised to show 2,000 more applications received than previously reported.

Economists polled by Reuters had expected first-time applications to rise to 345,000 last week.

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While claims are extremely volatile in July because of summer auto plant shutdowns, the general tone of the report remained consistent with a pick-up in job gains.

The four-week moving average for new claims, which irons out week-to-week volatility, fell 4,500 to 341,250.

Automakers traditionally close assembly plants for retooling in July, but they have either shortened the shutdown period or completely forgone the closures, throwing off the model that the government uses to adjust the data for seasonal variations.

A Labor Department analyst said the volatility remained in the data. No states had been estimated and there was nothing unusual in the state-level data, the analyst said.

Last week's data has no bearing on Friday's employment report for July. The government's closely monitored report is expected to show nonfarm payrolls increased 184,000 last month after rising 195,000 in June, according to a Reuters survey of economists.

The jobless rate is seen ticking down a tenth of percentage point to 7.5 percent. There is a risk payrolls could surprise on the upside after a report on Wednesday showed private employers maintained a higher pace of hiring in July.

The labor market is being closely watched by the Federal Reserve, which on Wednesday offered no indication it planned to reduce its monthly $85 billion in bond purchases at its next meeting in September.

The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid fell 52,000 to 2.95 million in the week ended July 20.