Other data released on Thursday, including a lackluster gain in a gauge of future activity last month, also implied that expansion had lost momentum after a brisk first quarter, though economists cautioned against interpreting the reports as signs of an impending double-dip recession.

 

"It is certainly disheartening news about the economy," said David Resler, chief economist at Nomura Securities International in New York.

 

"It is not persuasive evidence that we have dipped into recession again but it's certainly suggestive of a more serious deterioration than we had factored into our forecasts."

 

Financial markets were rattled by the data and investors sold stocks in favor of safe-haven government debt.

 

Initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 500,000 last week, the highest since mid-November, the Labor Department said, and the third straight week of gains -- a trend last seen in January.

 

Financial markets had expected claims to slip to 476,000.