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By Doug Palmer
WASHINGTON, Jan 20 (Reuters) - U.S. claims for initial jobless benefits last week posted their biggest decline in nearly a year, erasing a holiday-related spike to show a trend toward a healthier labor market remained intact.
The number of Americans filing for first-time unemployment benefits dropped sharply to 404,000 from a downwardly revised reading of 441,000 in the prior week, the Labor Department said on Thursday.
The 37,000 drop in claims was the biggest since the week that ended Feb. 6, when claims fell by 51,000. Analysts had expected weekly jobless claims to fall to 420,000.
"The trend of the last three months is clearly downward. The pace of layoffs is clearly lower," said Christopher Low, chief economist at FTN Financial in New York. But he added: "Hirings are still frustratingly slow."
A Labor Department official said the larger-than-expected decline was partly explained by jobless claims returning to trend after the big rise the earlier week.
The big spike in the week ended Jan. 8 may have reflected a backlog of claims built up over the holiday season.
The Labor Department data corresponds to the survey week for the government's closely watched report on employment, which will be released on Feb 4. The jobless rate has remained stubbornly high, and was reported at 9.4 percent in December.
U.S. stock index futures trimmed declines after the data, while U.S. Treasury bond prices added to losses. The dollar was slightly stronger against the euro.
The four-week moving average of new claims, which strips out short-term volatility, dropped by 4,000 to 411,750.
Economists say getting the four-week average for new jobless claims below 400,000 would be an important signal the lofty unemployment rate was set to come down.
Continuing claims fell to 3.86 million in the week ended Jan. 8, the lowest level in over two years.
However, the total number of Americans on benefit rolls, including extended benefits under emergency government programs, jumped to 9.6 million in the week ended Jan. 1 from 9.2 million the prior week. (Editing by Neil Stempleman)