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Initial claims for state unemployment benefits fell 29,000 to a seasonally adjusted 409,000, the Labor Department said on Thursday, continuing to unwind the prior weeks' spike.

Though the drop exceeded economists' expectations for a fall to 420,000, claims stayed above the 400,000 level that is normally associated with stable job growth for a sixth straight week.

The data covered the survey period for the government's closely watched employment report for May, which will be released early next month.

"Jobless claims are still at levels consistent with moderate job growth and little progress in bringing unemployment down," said Avery Shenfeld, chief economist at CIBC World Markets in Toronto.

A second report showed factory activity in the nation's Mid-Atlantic region slowed sharply in May. The Philadelphia Federal Reserve Bank said its business activity index slumped to 3.9 from 18.5 in April.

Economists had expected a reading of 20. A reading above zero indicates expansion in the region's manufacturing.

"We're probably past the peak in regard to manufacturing activity, but we don't think manufacturing activity is stopping. We just think it is slowing a bit," said Tom Porcelli, a U.S. economist at RBC Capital Markets in New York.

Separately, sales of previously owned homes fell 0.8 percent last month to an annual rate of 5.05 million units, the National Association of Realtors said. Economists had expected sales to rise to a 5.2 million unit-rate.

The factory and housing reports were the latest to suggest the economy struggled to regain momentum as the second quarter started. Manufacturing has been leading the recovery and economists still expect the trend to continue.

U.S. stocks pared gains and were last trading flat, while prices for government debt trimmed losses. The dollar fell against the euro and cut gains against the yen.

The four-week moving average of unemployment claims, a better measure of underlying trends, rose 1,250 to 439,000 - the highest level since mid-November.

The recent jump in claims, blamed on auto layoffs because of supply chain disruptions from March's Japanese earthquake and problems with adjusting data for seasonal variations, had raised fears of a pull-back in the pace of job creation.

Employers added 244,000 jobs in April, the most in 11 months. However, the unemployment rate rose to 9 percent from 8.8 percent in March.

A Labor Department official said only one state or territory, the Virgin Islands, had been estimated, indicating the report was largely clear of distortions.

The number of people still receiving benefits under regular state programs after an initial week of aid fell 81,000 to 3.71 million in the week ended May 7.

Economists had expected so-called continuing claims to fall to 3.72 million from a previously reported 3.76 million.

The number of people on emergency unemployment benefits increased 53,398 to 3.47 million in the week ended April 30, the latest week for which data is available. A total of 7.94 million people were claiming unemployment benefits during that period under all programs.

(Reporting by Lucia Mutikani, Ann Saphir and Rachelle Younglai; Editing by Andrea Ricci)

Like rivals Wal-Mart Stores Inc (WMT.N), Home Depot Inc (HD.N) and Lowes Cos (LOW.N), Sears has seen demand for appliances fall after a government stimulus for energy-efficient models ended last year. Many U.S. shoppers continue to look for incentives to buy expensive items like washers and refrigerators.

Bad weather in many parts of the United States, Sears' main market, also hurt sales of spring goods and kept shoppers away from stores.

The operator of Sears department stores and the Kmart discount chain has also faced criticism for relying too heavily on cost-cutting to boost profits rather than improving its merchandise mix and customer service.

Sales at the company have fallen every year since it was formed through the merger of Sears and Kmart in 2005.

Sears reported a net loss of $170 million, or $1.58 a share, for the first quarter ended on April 30, compared with a year-earlier net profit of $16 million, or 14 cents a share.

Excluding items, the loss was $1.39 a share, while analysts on average expected only a loss of $1.22, according to Thomson Reuters I/B/E/S.

In early May, Sears estimated the loss at $1.35 to $1.81 per share. It also reported a 3.6 percent drop in sales at its U.S. stores open at least a year, including a 5.2 percent decline for its namesake brand and 1.6 percent at Kmart.

At the time, billionaire investor Eddie Lampert, who formed the company and owns a controlling stake, said there were "no excuses" for the poor first quarter and that Sears must do better.

Sales fell 3.4 percent to $9.71 billion for the quarter. Analysts were looking for $9.63 billion.

Earlier this week, Sears Canada Inc (SCC.TO) reported a bigger quarterly loss on a 9.2 percent decline in same-store sales.

Sears, which recently named a new chief executive officer, is revamping its clothing lines and expanding the variety of home services it offers in a bid to win share from rivals ranging from Wal-Mart to Amazon.com Inc (AMZN.O).

(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn)

Oil held steady after an unexpected drop in crude inventories in the United States helped prices rebound, while wildfires in Alberta threatened to cut more supply from Canada.

European shares were up 0.3 percent in morning trade, led by commodity stocks after the initial public offering of Glencore (GLEN.L) helped boost sentiment in the sector.

On the economic front, investors awaited U.S. weekly jobless claims for more insight on the battered jobs market. A Reuters survey found a forecast for a total of 420,000 new filings, compared with 434,000 in the prior week.

Investors were also bracing for the National Association of Realtors' existing home sales for April and the Conference Board's leading economic indicators.

On the earning side, a few companies including Gap (GPS.N) and Sears (SHLD.O) were due to report results.

Big Lots (BIG.N) has decided against selling itself after bids from private equity firms did not meet the discount retailer's expectations, the Wall Street Journal reported.

PetSmart (PETM.O) posted better-than-expected first-quarter results as more customers visited its stores, and forecast a second quarter largely in-line with estimates, sending its shares up 6 percent after the bell.

Citigroup raised its 2011 year-end target for the MSCI All-Country World Index to 380 from 360, and its global earnings growth forecast for the year on the back of strong reporting seasons in the United States and Europe.

Wall Street snapped a three-day losing streak on Wednesday thanks to a rebound in commodity prices and Dell's strong earnings. Investors say stocks still face headwinds.

The Dow Jones industrial average .DJI gained 80.60 points, or 0.6 percent, to 12,560.18. The Standard & Poor's 500 Index .SPX rose 11.70 points, or 0.9 percent, to 1,340.68. The Nasdaq Composite Index .IXIC added 31.79 points, or 1.1 percent, to 2,815.00.

(Reporting by Blaise Robinson; Editing by Dan Lalor)

Investors have been struggling to find a common theme in financial markets after two routs in commodities over the past two weeks led to a reduction of risky assets in portfolios. Economic data out of the United States and China also sent mixed signals.

Some investors latched on to a rise in U.S. 10-year yields from a low for the year hit overnight because Federal Reserve officials expressed worries about inflation ahead of the expiration of a $600 billion bond purchase program next month. A rebound in the S&P 500 index from a one-month low also played a role.

A slide in Treasury futures suggested more weakness was in store for U.S. bonds.

Higher U.S. yields supported the dollar briefly against the low-yielding yen, but not against other major currencies. Price action suggests investors are sensitive to relative interest rate advantages, but also see the U.S. currency bogged down with economic and fiscal imbalances.

The dollar index, a measure of its value versus six other major currencies, was down 0.2 percent .DXY after hitting a one-month high on Monday.

The euro was up 0.1 percent to $1.4268 in choppy trade, trying to chalk up a fourth consecutive day of gains after the market was unable to push the common currency below its 200-week moving average at $1.4000.

"If you look at the next few months, the euro could fall to around $1.35. But I guess it's difficult to sell the euro beyond $1.40 now, when there's talk that the European Central Bank could raise rates in July," said Minori Uchida, a senior analyst at the Bank of Tokyo-Mitsubishi UFJ in Tokyo.

The dollar was at 81.64 yen, steady on the day after earlier hitting a three-week high of 81.82 yen.

SHRINKING JAPAN

Japan's Nikkei share average slipped 0.5 percent .N225, with tech shares reversing earlier gains and weighing on the broader market.

Japan's economy shrank more than expected in the first quarter and slipped into recession after the triple blow of the March earthquake, tsunami and nuclear crisis hit business and consumer spending and disrupted supply chains.

The difficult business environment has not hit stocks as hard and many economists expect growth to resume in the second half of the year, but power shortages are a real threat to the world's third-largest economy.

The MSCI index of Asia Pacific shares outside Japan rose 0.2 percent .MIAPJ0000PUS after earlier gaining as much as 1 percent, rallying from a six-week low hit on Tuesday.

The energy and materials sectors were outperforming after commodities prices posted their biggest gain in two months overnight. The MSCI's Asia Pacific ex-Japan materials sector index .MIAPJMT00PUS reflected the second-highest returns for the year to date among all sectors, but lagged far behind the top consumer discretionary sector.

Australia, one of the most sensitive economies in the region to commodity prices, saw its benchmark index rise 1.2 percent .AXJO, leading other Asian stock markets.

Miners listed in Australia were sold down too much when commodities prices plunged two weeks ago and large-cap miners such as BHP (BHP.AX) and Rio Tinto (RIO.AX) in particular are cheap, dealers and analysts said.

BHP and Rio Tinto shares were up 1.2 percent and 1.3 percent respectively in modest trading volume.

"In the longer term, with our commodity price forecasts, they remain attractive," said Mark Taylor, senior resources analyst at Morningstar.

U.S. crude's front month future edged down 0.3 percent to $98.80 a barrel, but was well above the low for the month hit two weeks ago at $94.63 a barrel.

The June 10-year Treasury future slipped 3/32 to 122-14/32 after the cash yield bounced 7 basis points to 3.18 percent on Wednesday.

Central banks and domestic U.S. mutual funds were buyers of Treasuries overnight, though other longer-term investors were sellers of mid-maturity paper, Royal Bank of Scotland said in a note.

Futures have broken an upward trend in place since early April and have also dropped back below the 200-day moving average, bearish technical signals that even without Washington hitting its debt ceiling should give caution to bond bulls.

Republican Congressional officials meanwhile have been floating the idea that investors would be forgiving if the government missed a few coupon payments.

(Additional reporting by Miranda Maxwell and Sonali Paul in MELBOURNE and Hideyuki Sano in TOKYO; Editing by Matt Driskill)

Shares in the grey market opened more than three percent above the offer price of 530 pence in London on Thursday, indicating appetite for the shares after many investors were left out of initial allocations.

At 530 pence -- the exact midpoint of Glencore's original range, but just below the middle of narrower guidance issued earlier this week -- the world's largest diversified commodities trader will be worth 36.7 billion pounds ($59 billion).

Glencore has said there is strong demand for its stock and had enough buyers to cover its offer within hours of starting the sale process earlier this month.

"Glencore's offer has seen substantial interest from investors around the world and was significantly oversubscribed throughout the price range providing Glencore with a high quality, diverse and geographically spread investor base," Glencore's Chief Executive Ivan Glasenberg said.

The final decision to price at 530 pence per share was in line with earlier market expectations, after fund managers said any price above 535 pence could see the shares drop in the immediate aftermath of the listing.

"The deal is priced to go. It is no surprise that it is oversubscribed, I think partly because of the competition created with the large number of brokers," analyst John Meyer at Fairfax in London said.

"I think it will have a good start in London and I think Glencore has a lot of positive attributes to show. There are some high risk areas of the business, but there are some clearly very good parts that underpin it."

Liberum, one of the banks advising Glencore, said in a morning note that the listing could mark the end of a "mini sell-off in both the sector and broader commodities."

Some investors, however, have said demand is largely due to the relatively small amount of shares being sold, the presence of cornerstone investors and substantial sales to tracker funds who are forced to own all companies in the main index.

Glencore's market value will propel the commodities trader straight into London's FTSE-100 index of bluechip shares, making it only the third ever company to do so,

"The share price range was too high, full stop, as far as we were concerned," said one UK equities manager, at a house running more than 200 billion pounds of assets.

"Put another way, had this been a 500 million pounds company, it would have had no chance of achieving the rating it is floating on."

Unconditional trading begins on Tuesday in London and Wednesday in Hong Kong, where Glencore is also listing.

Glencore, which is also floating in Hong Kong, will be listing a 16.4 percent stake, assuming no overallotment and no conversion of its convertible bonds.

But with a 10 percent overallotment option likely to take the total size of Glencore's offering to $11 billion, it is set to be London's largest-ever listing, overtaking Russia's Rosneft, which raised $10.6 billion in 2006.

It is already the biggest ever on the so-called premium listing segment of the London bourse.

($1=.6188 Pound)

(Additional reporting by Julie Crust and Paul Hoskins; Editing by Alexander Smith)