U.S. jobless claims fall again, productivity rises

By Lucia Mutikani

WASHINGTON (Reuters) - Fewer U.S. workers filed new claims for jobless benefits for a third straight week last week and productivity rose faster than expected in the first quarter, data showed on Thursday, supporting budding hopes that the recession is losing force.

The Labor Department said first-time applications for state unemployment insurance benefits fell 4,000 to 621,000 in the week ended May 30. It also said the number of people still on the benefit rolls after an initial filing fell in the prior week for the first time since the start of the year.

"It's still bad, but not as bad as it has been. It's consistent with the story that the economy is turning the corner and we may have passed the worst point (of the recession)," said Bill Cheney, chief economist at John Hancock Financial Services in Boston.

U.S. stocks .DJI ended 0.9 percent to 1.3 percent higher on the data. Government bond prices fell sharply and the yield gap between two-year and 10-year notes steepened to 276 basis points, just shy of its record wide 277 basis points set this week.

U.S. mortgage rates jumped to their highest in almost six months in the week to June 4, which could complicate the economy's anticipated recovery from the housing-led downturn if the trend is sustained.

A string of recent data -- from gains in home sales to rising consumer confidence -- has supported growing optimism that economic growth would resume in the second half of the year. But consumers have turned decidedly thrifty and the recovery likely won't be vigorous enough to create many jobs.

Reports from many retailers showed sales fell short of forecasts in May as consumers focused on basics.

Cleveland Federal Reserve Bank President Sandra Pianalto told a conference in Louisville, Kentucky that the economy's extreme weakness was moderating, but recovery would be slow and marked by lingering high unemployment.