New claims for unemployment benefits slipped last week, but stayed at a stubbornly high level that underscored the labor market recovery was having trouble gaining traction.

Initial claims for state unemployment aid dropped 11,000 to 457,000, the Labor Department said on Thursday. The latest figure was a touch more than the drop to 459,000 that economists polled by Reuters had forecast.

Analysts say new applications for jobless benefits, which have trended sideways for much of this year, have to drop to a range of 400,000 to 450,000 claims to signal sustainable job growth.

The labor market is steadying but at a relatively high level of unemployment. It offers a hint of improvement in labor market conditions, said John Lonski, chief economist at Moody's Investors Service in New York. Nevertheless, jobless claims remain quite elevated, and suggest labor slack persists.

Weak outlooks from technology companies and discouraging comments from a Federal Reserve official dragged U.S. shares to a weaker close. Major U.S. stock indexes initially rose on jobless claims data and Exxon Mobil Corp earnings.

The Dow Jones industrial average slipped 0.29 percent to close at 10,467.16, but still managed to stay in positive territory for the year to date. The Standard & Poor's 500 Index shed 0.42 percent to end at 1,110.53, while the Nasdaq Composite Index dropped 0.57 percent to close at 2,251.69. For details, see

Sluggish jobs growth, marked by a 9.5 percent unemployment rate, is the biggest obstacle to the economy's recovery from the most brutal recession since the 1930s -- a recovery that has shown signs of wilting in the last couple of months.

President Barack Obama, struggling in polls as Americans worry about the weak recovery, is pressing for approval of a $30 billion plan to help small businesses and create jobs. The plan was blocked in the Senate by Republicans on Thursday.

While growth in the United States appears to be taking a breather, recovery in some parts of Europe is back on track after being shaken by a sovereign debt crisis.

Euro-zone economic sentiment rose strongly this month to a 28-month high and unemployment in Germany fell to its lowest level since November 2008.

The upbeat European data lifted the euro to a 12-week high against the U.S. dollar, which also fell versus the yen.

SLOWING GROWTH

A U.S. government report on Friday is expected to show growth slowed to a 2.5 percent annual rate in the second quarter from a 2.7 percent pace in the first three months of the year.

The moderation in growth, measured by U.S. gross domestic product, will likely reflect a step back in consumer spending and factory output, and a wider trade gap.

The slowdown in manufacturing, which has led the recovery that started in the second half of 2009, likely persisted this month as most regional surveys have shown a pullback in activity.

However, a survey of manufacturing activity in the nation's Central Plains and Eastern Rocky Mountain region released on Thursday showed a strong rise for July.

The slowdown in economic activity bodes poorly for the job market.

With claims (for jobless aid) at these levels, the 200,000-plus increases in private payrolls that we need to see in order to bring unemployment down quickly just aren't going to happen any time soon, said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

With unemployment high, consumer spending has been tepid and home foreclosures have remained elevated.

Foreclosures rose in three of every four large U.S. metropolitan areas in the first half of this year, likely ruling out sustained home price gains until 2013, real estate data company RealtyTrac said on Thursday.

Unemployment was the main culprit driving foreclosure actions on more than 1.6 million properties, the company said.

In the week ended July 17, 4.57 million people were still receiving jobless benefits after an initial week of aid, up 81,000 from the previous week. The continuing claims data covered the survey period for the government's July household survey, from which the national unemployment rate is derived.

We expect the July household survey to show a rise in the jobless rate to 9.6 percent, said Mike Englund, chief economist at Action Economics in Boulder, Colorado.

The U.S. unemployment rate stood at 9.5 percent in June.

(Additional reporting by Lynn Adler and Richard Leong in New York; Editing by Todd Eastham and Jan Paschal)

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