First-time claims for state unemployment insurance fell an unexpectedly steep 14,000 in the week ended 3 April to 328,000 from 342,000 the previous week, the Labour Department said on Thursday.

The figures place such claims at their lowest level since just before President George Bush took office.

The size of the fall surprised analysts and led many to predict that a trend towards more hiring was in place, especially after last month's pickup in job creation.

"Clearly good news," said economist Pierre Ellis of Decision Economics. in New York. "What appears to be the resumption of new hiring should combine with this reduction in
layoffs to promote strong employment growth."

Financial markets were buoyed by the report, with the dollar rallying against other currencies while stocks rose.

Economists surprised

The jobless claims drop far exceeded forecasts by Wall Street economists who had predicted a dip of just 2,000. The Labour Department said last week's level was the smallest since
320,000 in the week of 13 January 2001.

Last week, the government reported a surge in new jobs during March with 308,000 positions added to payrolls outside the farming sector.

The jobless claims fall adds to evidence that hiring conditions may be improving after a long drought.

The employment market has been a hot issue in the campaign for November's US presidential elections, with opposition Democrats highlighting the net loss of jobs since Bush took office.

Critics also say the unemployment figures look better than they should because hundreds of thousands of workers have given up seeking work and therefore no longer claim welfare payments.