(Updates with graphic, extended claims)

By Lisa Lambert

WASHINGTON, Nov 12 (Reuters) - The number of U.S. workers filing new claims for jobless benefits last week fell to the lowest level since January, the government said on Thursday, evidence the hard-hit labor market may be slowly improving.

Initial claims for state unemployment insurance dropped to 502,000 in the week ended Nov. 7 from a revised 514,000 the prior week. Analysts polled by Reuters had expected claims to slip to 510,000 from an initially reported 512,000.

"It shows that companies are cutting jobs at a slower pace than during the financial crisis," said Gary Thayer, chief macrostrategist for Wells Fargo Advisors in St. Louis. "We're trending in the right direction, but we are probably several months away from (rising) monthly payrolls numbers."

The U.S. economy lost 190,000 jobs last month and the unemployment rate hit a 26-1/2-year high of 10.2 percent. While employers are cutting jobs at a slower pace than they were at the start of the year, economists expect the jobless rate to move higher before peaking in mid-2010. [ECILT/US]

Rising unemployment is causing a political headache for President Barack Obama and his fellow Democrats, even though the economy appears to have snapped out of its deepest downturn since the 1930s, with growth at an annual rate of 3.5 percent in the third quarter.

Some economist are concerned the country is gearing up for a "jobless recovery," which would hit U.S. consumers hard.

Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research), the world's largest retailer, on Thursday said its customers' are worried about unemployment as it forecast earnings for the current holiday quarter that could miss Wall Street estimates. The comments spurred concerns about overall consumer spending, which accounts for roughly 70 percent of U.S. economic activity.