updated 10/18/2007 12:21:52 PM ET 2007-10-18T16:21:52

The number of newly laid off U.S. workers filing claims for unemployment benefits shot up by the largest amount since early February, a far bigger increase than had been expected.

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The Labor Department reported Thursday that applications for jobless benefits hit 337,000 last week, an increase of 28,000 from the previous week. That was the biggest one-week surge since jobless claims jumped 42,000 the week of Feb. 10.

The increase was four times larger than the gain of 6,000 that economists had been expecting and could be a sign that the labor market is starting to weaken under the impact of a severe downturn in housing and the credit crisis that jolted financial markets in August.

The 337,000 total claims for the week was the highest level since a similar number of claims were filed on Aug. 25. Government analysts said that part of last week's big rise probably reflected trouble in adjusting the numbers for normal seasonal changes at the start of a new quarter, a time when claims often spike.

The four-week average for claims edged up to 316,500. While that was the highest-level in four weeks, it still remained within the narrow range between 300,000 and 340,000 where it has been for the past year.

"The labor market is weakening, but it remains to be seen if this week's reading is just a one-week occurrence or the start of a new trend," said Andrew Gledhill, an economist with Moody's Economy.com. He said a significant rise in jobless claims above 350,000 would be a strong sign that the labor market was weakening significantly.

Analysts have been expecting jobless claims to start posting increases, reflecting the economic blows that have occurred from the steepest housing slump in 16 years and a severe credit crunch.

For the week ending Oct. 6, 45 states and territories saw claims increase while eight reported declines. The biggest increases occurred in California, up by 6,317, and Georgia, up by 3,255.

Earlier this week, both Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke warned that the housing crisis was likely to last longer than had been expected.

Construction of new homes and apartments plunged to a 14-year low in September while the National Association of Home Builders' survey of builder confidence plunged in early October to the lowest level ever recorded in the 22-year history of the survey.

Analysts still believe the economy will be able to avoid a recession because they think the Federal Reserve, which cut interest rates for the first time in four years in September, will reduce rates further should conditions weaken further.

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