The number of Americans filing new jobless claims (search) fell a sharp 29,000 last week, the government said Thursday in a surprisingly upbeat report which nevertheless showed the U.S. jobs market was still soft.

New claims for state unemployment insurance benefits for the July 12 week dropped to 412,000 from a revised 441,000 in the prior week, the Labor Department (search) said. Analysts were expecting 425,000 new claims.

A department spokesman said the decrease reflected difficulties in adjusting for seasonal shutdowns in the automobile, textile and apparel industries.

The four-week moving average, a more accurate barometer of the labor market's health, also dropped, falling to 424,000 in the July 12 week from 427,500 the prior week.

"The rate of loss seems to be abating," said Mark Zandi, chief economist for Economy.com. "The economy is still losing jobs but at a slower rate so we are heading in the right direction."

"But reading this set of data is difficult during the summer because you have seasonally factors like plant closings that could skew the data," Zandi said.

Initial claims have been unable to punch below the critical 400,000 mark for 22 weeks, the longest run in more than a decade. At that time in 1992, the economy was growing at an anemic 2.0 percent annual rate. In the first quarter of 2003, the economy grew by a scant 1.4 percent.

Initial claims worsened in the second quarter averaging 433,154, up from an average of 405,308 in the first quarter.

"We would hope that the U.S. could get to at least a steady state of joblessness. But that means net job creation, and we're not quite there yet," said Bob Gay, global head of fixed income research at Commerzbank Securities.

The number of people who have stayed on the benefit rolls for more than week plunged 117,000 to 3.65 million in the July 5 week, the latest week for which data are available, and the biggest one week drop since February.

Michigan and New York reported the largest gains in weekly claims applications for the July 5 week. Michigan attributed its increase to vacation shutdowns in the automobile and related industries, while New York reported an rise in layoffs on the back of seasonal and school-related closings.