The number of U.S. workers filing new claims for jobless benefits rose last week, Labor Department data showed on Thursday, largely pushed up by auto plant shutdowns related to Chrysler's bankruptcy.

Initial claims for state unemployment insurance benefits increased by 32,000 to a seasonally adjusted 637,000 in the week ended May 9, the latest setback to hopes that the 17-month-long U.S. recession was nearing an end.

Even more troubling, the number of people staying on the benefit rolls after collecting an initial week of aid touched a record high for the 15th straight week early this month.

Weekly jobless claims, which are being watched closely for signs as to when the recession might bottom, reversed an easing trend of the previous two weeks.

A Labor Department official said a good part of the increase is due to automotive states and claims, referring to the woes of companies in the ailing auto sector.

The economy is probably declining at a slower rate, but it's not reached a turning point, said Steven Ricchiuto, chief economist at Mizuho Securities in New York. He said rising unemployment would likely lengthen the downturn.

U.S. stocks shrugged off the disappointing data as investors snapped up technology and financial shares after a recent sell-off. The Dow Jones industrial average ended up 46.43 points at 8,331.32, while the Standard & Poor's 500 Index gained 9.15 points to 893.07.

But the news drove a bid for U.S. government debt, pushing benchmark yields, which move inversely to prices, to two-week lows.


Chrysler began shutting its 30 manufacturing plants on May 1, a day after filing for bankruptcy.

On Thursday Chrysler informed U.S. dealers it planned to cut 25 percent of its retail showrooms and was seeking approval to terminate franchise agreements with 789 of 3,181 dealerships from June 9.

With General Motors' future still to be resolved, analysts said claims for jobless aid could rise even further.

We're going to see more filings from the auto sector. It's not just the manufacturers, it will go down to the supply chain, and we still have to deal with GM, said Ricchiuto.

An easing of initial claims in the prior two weeks had suggested the pace of job losses was slowing. In addition, the government said last week that nonfarm payrolls dropped 539,000 in April, the smallest decline for any month since October.

The jobless claims data came on the heels of a report on Wednesday that showed U.S. retail sales fell 0.4 percent last month, tempering hopes the downturn would soon end.

On Thursday, Wal-Mart Stores Inc reported flat profits in the quarter to April 30 as it managed to attract shoppers with low prices.


Highlighting the severity of the labor market crisis, the Labor Department said the number of people staying on the benefit rolls after collecting an initial week of aid jumped 202,000 to a record 6.56 million in the week ended May 2.

That was the largest weekly increase since late November and the 15th straight week that continued claims touched a record high. Continued claims have more than doubled from a reading of about 3.10 million in May 2008.

The insured unemployment rate, which measures the percentage of the insured labor force who are jobless, climbed to 4.9 percent -- the highest since December 1982 -- from 4.8 percent the previous week.

Analysts said this indicated the overall unemployment rate would keep rising from the 8.9 percent reported for April.

This report suggests that the small moderation in the severe pace of job loss recorded in April probably did not mark the beginning of any sort of major improving trend, said David Greenlaw, chief economist at Morgan Stanley in New York.


In another report, the Labor Department said prices received by U.S. producers rose at a brisk pace in April, driven by a surge in food costs. The Producer Price Index climbed 0.3 percent after declining 1.2 percent in March.

Food prices rose 1.5 percent in April, the biggest increase since January 2008, driven by a record jump in the cost of eggs, along with soaring prices for vegetables and meat.

Analysts said the jump in the headline figure was likely a blip and predicted negative readings in the near term.

The pressure on almost every business, in terms of goods, is to push prices down, said Bill Cheney, chief economist at John Hancock Financial Services in Boston.

Excluding food, the headline PPI would have increased 0.1 percent. However, compared to the same period last year, prices received by producers tumbled 3.7 percent, the biggest decline since January 1950.

(Editing by James Dalgleish)