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Initial claims for state unemployment benefits climbed 9,000 to a seasonally adjusted 429,000, the Labor Department said. The prior week's figure was revised up to 420,000.

Economists polled by Reuters had forecast claims to edge up to 415,000 from a previously reported count of 414,000.

The claims report covers the survey period for the government's closely watched data on nonfarm payrolls for June.

Claims increased 15,000 between the May and June survey periods, implying little or no gains in nonfarm payrolls this month after a modest 54,000 increase in May.

The data is the latest in a series to underscore the weakness in the economy, which has persisted through the second quarter.

The Federal Reserve on Wednesday acknowledged the slowdown, but generally perceived it as temporary. Although it cut its growth forecasts and downgraded its view of the labor market, it gave no indication of further monetary support.

The U.S. central bank confirmed it was winding up its $600 billion bond-buying program at the end of June.

A Labor Department official said technical problems had resulted in claims for six states being estimated last week.

The four-week moving average of new jobless claims, considered a better gauge of labor market trends, was unchanged at 426,250.

Initial claims have now been above the 400,000 mark for 11 weeks in a row. Analysts normally associate that level with a stable labor market.

The number of people still receiving benefits under regular state programs after an initial week of aid was little changed at 3.70 million in the week ended June 11.

Economists had expected so-called continuing claims to nudge down to 3.67 million from a previously reported 3.68 million.

The number of people on emergency unemployment benefits rose 5,728 to 3.30 million in the week ended June 4, the latest week for which data is available. A total of 7.54 million people were claiming unemployment benefits during that period under all programs.

(Reporting by Lucia Mutikani, Editing by Andrea Ricci)

The British bourse, which had hoped to win over Canadian shareholders of TMX by boosting its agreed $3.3 billion all-share bid with a $673.5 million special cash dividend on Wednesday, saw Maple retaliate just hours later.

Unashamedly nationalistic Maple, which is backed by 13 of Canada's largest financial firms, nudged its unsolicited cash and stock bid C$2 per share higher to C$50 a share, valuing its offer at C$3.8 billion ($3.88 billion).

With just one week to go before crucial shareholder votes on the agreed LSE deal, LSE Chief Executive Xavier Rolet is battling to secure the scale and clout the bourse needs to fight off incumbent rivals, nimble new market entrants -- and predators.

Some financiers not involved in the deal say Rolet has played his last hand. Betting against an escalating bid war, one said the prospects of securing TMX "did not look good."

"It would look bad if they raised and then raised again just a week before the shareholder vote. It would be like a game of tennis," he added.

Numis Securities analyst James Hamilton said: "I suspect the LSE shareholders will approve the deal on June 30 -- whereas it is a close call which way the TMX shareholders will go."

Analysts noted that the LSE's special dividend - 84.1 pence per LSE share and C$4.0 per TMX share - might add a welcome element of cash to the agreed offer, but it also meant the company would have to borrow to pay for it.

"The LSE dividend has nothing to do with the value of the deal, rather the dividend means only cash for shareholders and a more leveraged business. The tax benefit is the only way the dividend makes the offer more attractive," Hamilton said.

LSE AMBITIONS HANG IN BALANCE

The London and Canadian exchanges say their tie-up will create a transatlantic stock trading powerhouse with a particular specialization in minerals and raw materials companies, the existing strength of the Toronto Stock Exchange.

But critics say it would propel a key Canadian firm into foreign hands, and Maple is pitching itself as a "made-in-Canada" solution.

TMX said it acknowledged the new Maple offer and would review it.

A spokeswoman for the LSE declined to comment on Thursday. Shares in the British exchange were flat at 957 pence in midday trade, bucking a weak FTSE 250 .FTMC index. Analysts have long said the price reflects market hopes of an LSE takeover.

The exchange, which fought off the unwanted attention of bidders before Rolet took the helm just over two years ago, would be back in play if its fails to buy TMX.

"If the LSE don't get TMX then someone's probably going to come and bid for them," said one of the LSE's 50 largest shareholders.

U.S.-based exchange operator Nasdaq OMX (NDAQ.O), which failed to derail an agreed merger between Deutsche Boerse (DB1Gn.DE) and NYSE Euronext (NYX.N), has twice tried and failed with hostile LSE takeovers in the past five years.

Under the London offer, TMX shareholders will receive 2.9963 LSE Group shares for each TMX share, leaving LSE shareholders with control of 55 percent of the new company and TMX shareholders with 45 percent.

The LSE offer needs approval from provincial regulators and from federal Industry Minister Christian Paradis, who must determine if the offer is of net benefit to Canada.

(Additional reporting by Victoria Howley and Chris Vellacott)

(Editing by Kirstin Ridley and Erica Billingham)

Investors hoping for positive comments from Fed Chairman Ben Bernanke were disappointed, and that gave them a reason to sell after a four-day rally that had lifted stocks from three-month lows.

"Everyone decided that was a 'sell' signal," said Albert Meyer, portfolio manager of Mirzam Capital Appreciation Fund in Plano, Texas. "It's nothing new. We didn't expect anyone to come out and say the economy is growing."

Some analysts see range-bound trading ahead, with 1,295 seen among the S&P 500's first targets of resistance.

Bryant Evans, investment advisor and portfolio manager of Cozad Asset Management, in Champaign, Illinois, said the market could go "sideways to down" for three months as the economy takes its time to build back momentum.

Expectations about a second round of Fed stimulus last fall helped ignite an extended rally in stocks. There is some hope the Fed will conduct another round of asset buying, but most economists see it as unlikely at this time.

The Dow Jones industrial average .DJI slid 80.34 points, or 0.66 percent, to end at 12,109.67. The Standard & Poor's 500 Index .SPX fell 8.38 points, or 0.65 percent, to 1,287.14. The Nasdaq Composite Index .IXIC lost 18.07 points, or 0.67 percent, to close at 2,669.19.

The S&P 500 is down 5.6 percent from its early May high.

"The market was up four days in a row coming into today, the rally has been OK, but it hasn't shown enough strength to break the downside momentum the market has had since May," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville.

After the closing bell, Bed Bath & Beyond Inc (BBBY.O) shares rose 3.3 percent to $55.84 after the retailer posted a quarterly profit that handily topped Wall Street's expectations and boosted its full-year earnings forecast.

ADOBE SLIDES, BUT FEDEX FLIES

Weighing on tech during the regular session, Adobe Systems Inc (ADBE.O) shares slumped 6.3 percent to $30.01 a day after the software maker reported a 54 percent jump in quarterly profit, but warned of weakness in European demand.

Among the day's gainers, economic bellwether FedEx Corp (FDX.N) rose 2.6 percent to $91.44 after the shipping group reported strong fourth-quarter profit and forecast robust 2012 earnings.

In its statement, the Fed, as widely expected, said it will maintain interest rates at exceptionally low levels for an extended period. It also reiterated it was ending its $600 billion bond-buying program at the end of the month.

The central bank's policy-makers, at the end of a two-day meeting, lowered the Fed's gross domestic product forecast for 2011 to a growth rate of just 2.7 percent to 2.9 percent -- down from an April projection of 3.1 percent to 3.3 percent.

The Fed also reduced its 2012 GDP growth forecast to a range of 3.3 percent to 3.7 percent, below its previous projection.

A spate of weaker-than-expected economic data has underscored fears that the recovery is faltering, and raised worries about how the economy will fare without more support from the government.

Another indicator of pessimism: Net short positions by hedge funds on the S&P 500 have risen recently, according to Societe Generale cross-asset research.

Billionaire investor Ken Fisher said in an interview on Wednesday he believes the U.S. stock market will finish only slightly higher this year before returning to the trend of the previous two years, when prices doubled in the wake of the financial crisis in 2008.

Volume once again was lighter than normal, with just 6.2 billion shares traded on the New York, Nasdaq and NYSE Amex exchanges, compared with a daily average of 7.58 billion.

Declining stocks outnumbered advancing ones on the NYSE by nearly 17 to 12. On the Nasdaq, decliners beat advancers by about 17 to 8.

(Reporting by Caroline Valetkevitch; Additional reporting by Rodrigo Campos, Ashley Lau and Edward Krudy; Editing by Jan Paschal)