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Initial claims for state unemployment benefits fell 36,000 to a seasonally adjusted 383,000, the lowest since early July 2008, the Labor Department said.

Economists polled by Reuters had forecast claims slipping to 410,000. The prior week's figure was revised up to 419,000, from the previously reported 415,000.

The data, coming on the heels of Friday's report showing the economy created a paltry 36,000 jobs in January, added to other employment indicators that have pointed to a gain in momentum in the labor market.

Initial claims breached the 400,000 mark and economists say a sustained move below that level would signal strong job growth.

A Labor Department official said claims were still unwinding some of the weather effects that pushed up applications last month.

The four-week moving average of unemployment claims -- a better measure of underlying trends - dropped 16,000 to 415,500 last week.

The number of people still receiving benefits under regular state programs after an initial week of aid declined 47,000 to 3.89 million in the week ended January 29 from an upwardly revised 3.94 million the prior week.

Economists had expected so-called continuing claims to fall to 3.90 million from a previously reported 3.93 million.

The number of people on emergency unemployment benefits increased 100,366 to 3.76 million in the week ended January 22, the latest week for which data is available. A total of 9.4 million people were claiming unemployment benefits during that period under all programs.

The maker of Pepsi-Cola and Frito Lay snacks saw its shares fall 1.8 percent in premarket trading, despite posting a fourth-quarter profit that beat Wall Street estimates by a penny.

PepsiCo said net income fell 5 percent to $1.37 billion, or 85 cents per share, in the quarter that ended on December 25, from $1.43 billion, or 90 cents per share, a year earlier.

Excluding items, earnings were $1.05 per share, topping analysts' average estimate of $1.04 per share, according to Thomson Reuters I/B/E/S.

Its sales jumped 37 percent to $18.16 billion, helped by the acquisition last year of its two largest bottlers.

PepsiCo said it now expects full-year earnings to grow 7 percent to 8 percent. In October it said it expected growth of 11 to 12 percent, down from a prior forecast of 11 to 13 percent.

Its shares fell $1.13 to $63.29 in premarket trading, from Wednesday's close of $64.42 on the New York Stock Exchange.

(Reporting by Martinne Geller, editing by Maureen Bavdek)

Earnings news is likely to be in the spotlight, with fourth-quarter results expected from Expedia Inc. (EXPE.O), Kraft Foods, PepsiCo Sprint Nextel Corp. and Goodyear Tire & Rubber.

After the market close on Wednesday network equipment maker Cisco Systems Inc's (CSCO.O) shares sank 9.3 percent in extended trading after CEO John Chambers warned of dwindling public spending and weaker margins from tough competition.

After the bell Whole Foods Market Inc (WFMI.O) surged 8.1 percent to $58.11 after it raised its full-year profit view reported and quarterly earnings that topped expectations.

Looking at economic news, investors will watch the U.S. weekly jobless claims at 1330 GMT, with economists in a Reuters survey forecasting a total of 410,000 new filings compared with 415,000 in the prior week.

At 1500 GMT is the release of U.S. Wholesale Inventories for December, with economists in a Reuters survey forecast inventories to rise 0.7 percent versus a November decrease of 0.2 percent.

The Wall Street Journal reported that Google Inc (GOOG.O) and Facebook Inc, plus others, have held low level takeover talks with Twitter that give the Internet sensation a value as high as $10 billion.

According to two people familiar with the matter, wireless operator Clearwire Corp (CLWR.O) is planning on shifting its sales strategy toward wholesale clients away from retail consumer services.

On Thursday Republican lawmakers at a hearing plan to scrutinize new costs for manufacturers, farmers and other types of "end user" businesses that use derivatives to hedge their risks. The upcoming regulation on capital and margin requirements is a key concern.

The computer security firm McAfee Inc (MFE.N) said in a report hackers working in China broke into the computer systems of five multinational oil and gas companies to steal bidding plans and other critical proprietary information.

On Wednesday, investors took profits after a recent rise in U.S. stocks, but a late-hour rally in Bank of America shares helped the Dow squeeze out its eighth straight day of gains.

European stocks fell 0.9 percent hit by weaker-than-expected earnings news from Swiss bank Credit Suisse (CSGN.VX), Danish banking group Danske (DANSKE.CO) and Diageo (DGE.L), the world's biggest spirits group.

(Reporting by Joanne Frearson; Editing by Hans Peters)

Deutsche and NYSE said they are in advanced talks to form a marketplace that would have annual trading volume exceeding $20 trillion, the latest in a flurry of mergers pointing to a shake-up of an industry under intense cost pressure from upstart electronic rivals.

"Due to changes in the financial market landscape, HKEx will consider international opportunities for alliances, partnerships and other relationships that present strategically compelling benefits consistent with its focus on markets in China," Hong Kong Exchanges and Clearing Ltd said on Thursday. It had not identified any opportunities, it added.

News Deutsche Boerse could be close to buying NYSE Euronext came shortly after the London Stock Exchange announced a bid for Canada's TMX.

The merger activity spurred a near 5 percent rally in shares of Australia's ASX, which is trying to overcome domestic opposition to a $7.9 billion takeover bid from the Singapore Exchange.

In contrast, HKEx shares slumped on worries a round of mergers would intensify competition for the exchange, whose markets generate $1.5 trillion in trading volume. The shares closed down 4.9 percent, the most since May 2009, on the highest trading volume since late 2008, Reuters data shows.

HKEx, which has a market capitalization of around $24.4 billion, has so far felt no need to merge. Its position as a gateway to China for international investors and its strong pipeline of China-backed IPOs has kept business booming.

Other exchanges in Asia have been reluctant to seek tie ups due to tight ownership, while regulations in some markets, such as India and China, prevent significant foreign involvement.

"The competitive threat from alternative trading pools makes strategic sense for traditional exchanges to combine resources so they can compete better," said Neo Chiu Yen, vice president for equity research at ABN AMRO Private Bank.

The Tokyo Stock Exchange indicated no interest in seeking a merger.

REVIVAL

SGX's bid for ASX faces major political and regulatory hurdles in Australia, but the Singapore exchange said the merger talks announced in recent days supported its case.

"The latest developments underscore the rationale for exchange consolidation and the merits of an enlarged group," Chief Executive Magnus Bocker said in a statement.

In fact, the flurry of merger activity might help boost support for the Singapore-Australia tie up, said Magdalene Choong, an analyst at Phillip Securities.

"Having seen so many mergers in the global market recently, Australia may better accept the prospect of being part of a larger group and it's paved the way for Australians to accept the reality of today's world," Choong, who has a "buy" rating on SGX, said.

The size of the buyback and the target for completing it by 2012 was not good enough for some investors, who were hoping for more cash up front and sent Rio's shares 1 percent lower in early London trade.

"The fact that (the buyback's) long-dated might disappoint some investors," said Lyndon Fagan, resources analyst at RBS in Sydney.

After whittling down a $40 billion mountain of debt the no.3 global miner by market value said it was in strong shape to take advantage of any other opportunities that might arise, even after returning cash to shareholders.

Burned by its top-of-the-market takeover of Alcan in 2007, Rio has said it is only looking for acquisitions worth less than about $5 billion. Investors were upbeat on the results, which were in line with forecasts.

"I was pleasantly surprised by the share buyback. It was definitely in the top end of what I thought they would do. It was a good result," said Brendan James, portfolio manager at Perennial Growth.

Rio's move will raise expectations that top global miner BHP Billiton, with its nearly debt free balance sheet, will step up its dividend payout and add to its ongoing $4.2 billion share buyback when it reports results on February 16.

Smaller rival Xstrata set the pace earlier this week topping forecasts with an 86 percent jump in full-year profit and a dividend that was nearly double market expectations.

Rio and its peers are all flush with cash, producing at full steam with copper prices at record highs, spot iron ore prices up nearly 50 percent from a year ago, and thermal coal prices up nearly 40 percent.

Chief Executive Tom Albanese said economic growth in emerging markets combined with supply constraints meant the market and pricing outlook for commodities remained positive, but warned that the risks were "elevated."

"In particular, the timing and speed at which post-global financial crisis stimulus packages are removed have the potential to generate both volatility and substantial swings in commodity prices," he told reporters.

Rio plans to further invest in its expansion projects, after approving $12 billion worth of work in 2010. "Our business is back doing what it does best and performing exceedingly well," Albanese said.

Underlying earnings before one-offs rose to $8.22 billion for the six months to December, based on Reuters calculations, from $3.73 billion a year earlier and against analysts' forecasts of around $8.29 billion.

The company stepped up its dividend to 108 cents a share for the year, up from 45 cents a share a year ago. Analysts had said anything more than 100 cents a share would be a big surprise.

"That by itself reflects the confidence that we've got going forward that we can maintain that dividend, because it's a progressive dividend," Rio's Chief Financial Officer Guy Elliott told reporters.