(Corrects to second paragraph to show unemployment fell 0.1 percent)
* White House still sees unemployment hitting 10 percent
* Analyst: improving economy could hurt regulatory reform
By Jeff Mason
WASHINGTON, Aug 7 (Reuters) - The news was positive, but the response cautious.
President Barack Obama, after weeks of defending his economic policies in the face of falling public opinion polls, welcomed a report on Friday that unemployment dipped in July to 9.4 percent from 9.5 percent in June, but declined to declare victory.
The bad news may not be over yet, he said, after Labor Department data showed the U.S. unemployment rate fell for the first time in 15 months.
"Today we're pointed in the right direction," Obama said. "We have a lot further to go. As far as I'm concerned, we will not have a true recovery as long as we're losing jobs."
Analysts said the president was right to be circumspect.
"He doesn't want a 'Mission Accomplished' moment like Bush did on the war," said Michael Ettlinger, vice president for economic policy at the Center for American Progress, referring to an infamous photo of former President George W. Bush in front of a "Mission Accomplished" banner during the Iraq war.
"These numbers are a sign that we might be past the freefall period of this recession but we're still losing lots of jobs," Ettlinger said. "There still could be worse months than this ahead. It's going to be a long haul back."
Obama has defended vigorously the effectiveness of his $787 billion economic stimulus package in recent weeks, and the unemployment figures -- fresh after a report showing that GDP contracted only a modest 1 percent in the second quarter -- strengthened his argument.
The White House had played down expectations ahead of the jobs report, saying it would likely show a rise in unemployment and hundreds of thousands of further job losses.
After the data's release, Obama's spokesman, Robert Gibbs, stuck to predictions that unemployment would hit 10 percent this year.
RISKS AWAIT
Analysts said Obama was wise to keep his reaction in check so opposition Republicans could not pounce if the next round of economic indicators is less rosy.
"The economy has stabilized, the markets have risen and we now have improved unemployment figures, but his best bet is to let voters connect the dots themselves," said Julian Zelizer, a Princeton University history professor.
"If he and the administration boast too much, claiming credit for the good times, the danger is that bad numbers can appear in the coming months and he will hand Republicans the very argument they are looking for."
Republicans charge that the president's stimulus package was too expensive and did not do enough to spur economic growth, but the president made clear he saw vindication -- even if more work remained to be done.
"While we've rescued our economy from catastrophe, we've also begun to build a new foundation for growth," Obama told reporters. "That's why we passed an unprecedented Recovery Act less than a month after I took office."
Simon Johnson of MIT's Sloan School of Management said another potential downside to signs of economic recovery could be waning appetite for Obama's plans to overhaul the banking practices that helped start the economic crisis.
"There's a gray lining to the cloud," Johnson said, referring to the jobless figures. "It doesn't help him push for regulatory reform for the financial system."
He said opponents of regulatory reform would argue that an improving economy meant capital requirements for banks did not need to be raised and oversight rules did not need to expand.
"It strengthens the hands of the banks that remain standing like JP Morgan and Goldman Sachs," he said. "There's basically zero chance that anyone will come after them." (Editing by Simon Denyer and Eric Beech)