The number of Americans filing initial claims for jobless aid dropped sharply last week to the lowest in more than three years, the government said on Thursday in a further sign of a reviving employment market.

First-time claims for state unemployment insurance fell 14,000 in the week ended April 3 to 328,000 — the lowest level since just before President Bush (search) took office — from 342,000 the prior week, the Labor Department (search) said.

The unexpectedly large drop in claims likely will garner close attention both at the Federal Reserve (search) and the White House.

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

Last week, the government reported a sharp surge in new jobs during March with 308,000 positions added to payrolls, and the decline in jobless claims adds to evidence that hiring conditions may be on the upswing after a long drought.

The apparent pickup in employment may also hasten an end to a long era of low interest rates, which saw the Federal Reserve cut its key lending rate for overnight loans between banks to a 1958 low. The Fed regularly cites its concern about slack labor markets as a reason for keeping rates low, though the recent jobs data suggest the slack is being taken up.

Weak hiring has been a hot issue in the campaign for November's presidential elections, with Democrats highlighting the overall loss of jobs since Bush took office while administration officials maintain an economic upswing will soon give rise to job growth.

The Labor Department's four-week moving average of new claims, which irons out weekly fluctuations, declined 3,250 last week to 336,750 - the lowest since 335,750 in the week of Nov. 25, 2000.