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Initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 418,000, the Labor Department said.

Economists polled by Reuters had forecast claims rising to 410,000. The prior week's figure was revised up to 408,000 from the previously reported 405,000.

The claims data covered the survey period for the closely watched nonfarm payrolls count for July. Initial claims dropped 11,000 between the June and July survey periods, suggesting a modest improvement in payrolls after June's paltry 18,000 gain.

A rise in layoffs held back payroll growth in May, according to the department's latest Job Openings and Labor Turnover Survey, which was released last week. Layoffs were probably behind the downshift in employment growth in June as well.

A government shutdown in Minnesota following a budget impasse resulted in an additional 1,750 state employees filing claims for jobless benefits last week.

Initial claims have now been above the 400,000 mark for 15 straight weeks. That level is usually associated with a stable labor market.

The four-week moving average of claims, considered a better measure of labor market trends, slipped 2,750 to 421,250.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 50,000 to 3.70 million in the week ended July 9.

The number of Americans on emergency unemployment benefits declined 80,133 to 3.15 million in the week ended July 2, the latest week for which data is available.

A total of 7.33 million people were claiming unemployment benefits during that period under all programs, down 159,000 from the prior week. (Reporting by Lucia Mutikani; Editing by Neil Stempleman)

Intel Corp (INTC.O) trimmed its forecast for 2011 personal computer unit sales, warning of softness in mature markets and sending its shares down more than 1 percent even as its revenue outlook beat estimates. The shares traded in Frankfurt (INTC.F) were down 2.8 percent.

American Express Co (AXP.N) posted a 31 percent increase in second-quarter profits, beating analysts' expectations, as customers spent more on their cards and the company's processing revenue jumped. The shares traded in Frankfurt (AXP.F) were down 0.1 percent.

European stocks were down 0.6 percent in morning trade, led lower by tech stocks as investors ditched shares in mobile phone network equipment supplier Ericsson (ERICb.ST) after it missed earnings forecasts, due to a hefty jobs cut charge, and forecast less profitable business in the pipeline in Europe.

Investors awaited the emergency euro zone summit in Brussels on Thursday to see if a new bailout deal can be forged for debt-stricken Greece. After seven hours of talks late into Wednesday night between German Chancellor Angela Merkel and French President Nicolas Sarkozy in Berlin, the two leaders reached a common position on a second rescue package for Greece, that will be presented to the meeting. Details of the common position were not revealed.

A buyback of Greek debt is the only form of private sector involvement in the second bailout that has a chance of not triggering a downgrade of Greek sovereign debt to a 'selective default', a euro zone source said. Euro zone sources close to talks on Thursday on the second bailout said the buyback idea was one of the main options now under consideration.

On the earnings front, investors awaited results from companies including Morgan Stanley (MS.N), Advanced Micro Devices Inc (AMD.N), Eli Lilly (LLY.N), Microsoft Corp (MSFT.O), Pepsico Inc (PEP.N) and AT&T (T.N).

On the macro side, the market awaited weekly jobless claims, as well as leading indicators.

Data showed on Thursday Chinese manufacturing contracted for the first time in a year in July and at its fastest pace since March 2009, as the country's monetary policy tightening and sluggish global demand weighed on the economy.

U.S. stocks closed near unchanged on Wednesday, a day after Wall Street's best rally since March, as the oncoming debt ceiling deadline overshadowed strong earnings from Apple Inc.

The Dow Jones industrial average lost 15.51 points, or 0.12 percent, at 12,571.91. The S&P 500 Index shed 0.89 points, or 0.07 percent, at 1,325.84. The Nasdaq Composite Index fell 12.29 points, or 0.43 percent, at 2,814.23.

(Reporting by Blaise Robinson; Editing by Greg Mahlich)

Pending details of the joint deal that supposedly included European Central Bank President Jean-Claude Trichet, investors were cautious about pushing equity markets any higher, with Asian stocks flat, weighed by the tech sector after a rally in the prior session.

Deep questions remain about Europe, including whether the second bailout of Greece will address contagion in other fiscally weak countries such as Portugal and Ireland or even Spain and Italy, whose bond markets have been savaged in July.

"Judging from the current crop of headlines, the most negative outcome for the euro would be a debt rollover without additional measures," Todd Elmer, currency strategist with Citi, said in a note.

"Of course, the euro already appreciating ahead of the meeting and moves in other asset classes somewhat more modest than the FX price action would suggest it is far from clear that currency gains could be sustained beyond the short-term."

Dealers in Asia were also positioning ahead of HSBC's flash PMI for China due at 0230 GMT. The index is close to the threshold that separates growth and contraction in the manufacturing segment, and could rekindle fears of an abrupt slowdown in the world's second-biggest economy.

The euro was up 0.2 percent around $1.4250 after hitting a session high near $1.4275 on news of an accord between France and Germany over Greece.

With uncertainties still high about negotiations over the U.S. debt ceiling, traders may push the euro higher against non-dollar currencies. Indeed, the common currency was already up 0.5 percent against the Swiss franc, at 1.1715 francs.

Japan's Nikkei share average .N225 was nearly unchanged in early trade, with weakness in tech-related stocks offsetting some strength in retailers.

The tech sector was getting whipsawed after weak results from Yahoo Inc (YHOO.O), a lowered PC market forecast from Intel (INTC.O), and after Microsoft Corp (MSFT.O) stock dropped 1.7 percent ahead of its quarterly report on Thursday.

Apple's blockbuster results had given the sector a shove higher on Wednesday.

The MSCI index of Asia Pacific stocks outside Japan .MIAPJ0000PUS was also flat. The index has bounced 3.5 percent since hitting a 3-month low in June.

Price action reflected more of a trimming of bets on so-called safe havens but not yet a wholehearted move back into outright risk taking.

U.S. Treasury futures were down 6/32 to 124-13/32, though still are not far from a seven-month high reached in June.

Precious metals were also off recent highs, with gold down 0.1 percent at $1,598.34 an ounce. Gold hit a record high of $1.609.51 on July 19 and has risen 6.6 percent in July.

The accord came after seven hours of talks late into Wednesday night between German Chancellor Angela Merkel and French President Nicolas Sarkozy in Berlin, sources in both governments said.

Details of the common position were not revealed, but the French delegation said it would include a contribution to the Greek bailout by Europe's banking sector. European Central Bank President Jean-Claude Trichet joined Merkel and Sarkozy for part of their talks.

The Franco-German accord will now be presented to a summit in Brussels on Thursday of all 17 leaders of the single currency area to address the Greek crisis, which in the last two weeks has threatened to engulf bigger states such as Italy.

The new bailout would supplement a 110 billion euro ($156 billion) rescue plan for Greece launched in May last year. It is expected to include fresh emergency loans to Athens from euro zone governments and the International Monetary Fund, and a contribution by private sector investors.

Worried about the impact on financial markets and wary of angering their own taxpayers, euro zone governments have struggled for several weeks to agree on major aspects of the plan, especially the private sector contribution.

The euro rose moderately against the dollar in response to the Franco-German announcement, but markets may remain nervous until details are revealed. Providing fresh money to Greece and arranging for banks to participate could face legal and technical obstacles.

The head of the European Commission, Jose Manuel Barroso, warned on Wednesday that the global economy would suffer if Europe could not summon the political will to act decisively on Greece.

"Nobody should be under any illusion: the situation is very serious. It requires a response, otherwise the negative consequences will be felt in all corners of Europe and beyond," Barroso told a news conference.

(Writing by Andrew Torchia; Editing by Matthew Jones)