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Hundreds of people wait in line to get into a job fair in San Mateo, Calif. The number of Americans filing for new jobless benefits has dipped below the 400,000 level for the first time since 2008. ((Paul Sakuma/Associated Press))

The number of Americans applying for unemployment benefits fell sharply last week, a positive sign that the U.S. job market is slowly improving.

The U.S. Labour Department said Thursday that applications dropped by 34,000 to 388,000 in the week ending Dec. 25. That was the lowest figure since the week of July 12, 2008.

Applications for U.S. unemployment benefits peaked during the recession at 651,000 in March 2009.

The four-week moving average was 414,000, a decrease of 12,500 from the previous week's revised average of 426,500. Economists pay closer attention to the four-week figure because it smooths out fluctuations.

The level of applications can be particularly volatile during the holidays. But a department analyst said there were no unusual factors affecting the report.

"If we can continue this improving trend, we'll likely see stronger job growth in 2011," said Benjamin Reitzes, an economist at BMO Capital Markets.

Most economists expect the December jobs report, which comes out on Jan. 7, will show larger gains.

Reitzes said that employers likely added 150,000 net new jobs this month, and projects the unemployment rate will tick down to 9.7 per cent. The monthly total of new jobs could increase next year if claims continue dropping steadily, he said.

The total number of people receiving unemployment benefits rose in the week ending Dec. 18 to 4.13 million.

That doesn't include millions of unemployed workers receiving extended benefits under an emergency program set up during the recession. About 4.5 million people are receiving extended benefits for up to 99 weeks. All told, nearly 8.9 million people obtained unemployment benefits in the week ending Dec. 11, the latest data available.

A state-by-state breakdown shows California (at negative 7,656) had the largest decline in claims because of an improving agricultural sector, while New Jersey saw 5,235 new claims because of layoffs in the construction, trade, service and manufacturing industries.

Brighter housing picture

Seperate U.S. economic news echoed the rosier jobs story. The National Association of Realtors reported that the number of Americans who signed contracts to buy homes rose in November, the fourth increase since contract signings hit a low point in June.

So-called "pending home sales" area seen as a good forward indicator of the economy's direction, as housing implies confidence and has a large economic spillover effect.

"Steady improvements in the economy are helping bring buyers into the market," NAR chief economist Lawrence Yun said in a statement.

The agency forecasts existing-home sales will rise about eight per cent to 5.2 million in 2011 from 4.8 million in 2010, with an additional gain of four per cent in 2012.

With files from The Associated Press