Job market, factory activity remain weak

By Burton Frierson

NEW YORK (Reuters) - Job losses in the moribund U.S. economy mounted last week and manufacturing remained in dire straits this month, while other data on Thursday showed the threat of deflation persisted in December.

The number of U.S. workers filing new claims for unemployment benefits rose to a seasonally adjusted 524,000 last week, underscoring a bleak outlook after the worst year of job cuts since 1945.

Factory activity in New York state and the Mid-Atlantic region shrank in January, but the pace of contraction eased a bit, according to a separate reports that still highlighted a weak employment outlook in the manufacturing sector.

U.S. producer prices fell for a fifth straight month in December, government data showed, indicating worries over a deflationary spiral of falling prices, wages and economic activity remained a serious concern.

"There is a major reduction in global demand for everything -- commodities, food and oil," said Brian Fabbri, managing director of economic research at BNP Paribas. "Prices keep coming down as demand keeps slipping away.

"The two regional factory surveys are not as bad as they were in December, but frankly, they are pointing to very, very weak economic activity ... December may prove to be the trough month, but it may take a long time and a lot of effort to get them back to neutral."

U.S. stocks ended higher in a trading session that was marked by volatility caused by the latest worries over the health of the financial sector.

U.S. government bonds, which usually benefit from signs of economic weakness, were steady to higher on the day.