By Lucia Mutikani

WASHINGTON (Reuters) - The number of U.S. workers drawing unemployment aid jumped to a record high of nearly 5 million, the government said on Thursday, as a worsening economy made it increasingly hard to find jobs.

The data from early February suggested the 13-month-old U.S. recession was deepening, a conclusion supported by a report that showed factory activity in the country's Mid-Atlantic region contracted sharply in February.

"The data indicates an accelerated deterioration ... jobs are being lost and the pool of unemployed is growing faster," said Kevin Logan, senior U.S. economist at Dresdner Kleinwort in New York. "People cannot find jobs."

U.S. stocks fell as the data reinforced fears the worsening slump would erode company profits, driving the Dow Jones industrial average to 7,465.95, its lowest close since October 2002.

Worries about more heavy borrowing to fund the government's efforts to rescue the economy hammered Treasury debt prices.

The number of unemployed still on the benefits rolls after drawing an initial week of aid surged 170,000 to 4.99 million in the week ended February 7, the Labor Department said.

It was the highest reading on records dating to 1967 and it took the insured jobless rate to 3.7 percent, the highest since 1983, when the economy was emerging from a 16-month recession.

New applications for unemployment benefits were steady at 627,000 last week, hovering close to a 26-year high and raising the possibility that job losses in the non-farm sector could cross the 600,000 threshold in February.