The number of U.S. workers filing new claims for jobless benefits surged to a 26-1/2-year high last week, data showed on Thursday, indicating that layoffs have yet to peak even as other reports signaled some improvement in the economy.

The Labor Department report also showed the ranks of unemployed who have claimed more than one week of aid hit a record peak last month, underscoring the hardships of finding a new job in a recession that has entered its 16th month.

The Commerce Department, meanwhile, said on Thursday that new orders received by U.S. factories rebounded in February, snapping a six-month streak of declines. Orders for expensive, durable items were stronger than earlier thought, and demand for short-lived goods also edged up, it said.

That data came on the heels of stronger-than-expected reports on housing and retail sales that have raised some hope a bottom in the economy's downturn might be in sight.

Economists said the jobless data indicated the serious challenges that remain in restoring the economy to health.

It would be an exaggeration to call this a firm rebuttal of the better (economic) data of recent weeks, but it is nonetheless quite striking, said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

Claims are typically one of the very first indicators to signal economic recovery, and there is no sign of that in the data yet.

New applications for state jobless insurance benefits rose to 669,000 in the week ended March 28 from 657,000 the week before, the Labor Department said. It was the highest level of initial filings since the week ended October 2, 1982.

U.S. stocks brushed aside the dour report, rallying as world leaders meeting in London agreed to a $1.1 trillion deal to tackle the global economic crisis and banks were given more flexibility to price toxic assets.

Sentiment was also lifted by the sturdy factory orders data, boosting investors' appetite for riskier assets. The Dow Jones industrial average <.DJI> ended up 216.48 points, or 2.79 percent, at 7,978.08, while the S&P 500 <.SPX> rose 23.30 points, or 2.87 percent, to 834.38.

Those hefty gains sent U.S. government bond prices tumbling and the U.S. dollar falling against a basket of key currencies.

NEW JOBS TOUGH TO GET

Highlighting the difficulties of getting a new job, the number of people still on the benefit rolls after collecting an initial week of aid surged by 161,000 to a record high of 5.73 million in the week ended March 21.

The insured unemployment rate, which measures the percentage of the insured labor force who are jobless, rose to 4.3 percent, the highest since May 1983, from 4.2 percent a week earlier.

Rising unemployment is a major headwind to the economy's recovery and analysts are watching for signs of a peak in new applications for unemployment benefits for clues on when the recession will end. Some economists say initial claims tend to peak three to four weeks before a recession ends.

These (data) are a strong counter-argument that the recession is moderating. It is still consistent with very large job losses, said Mark Vitner, a senior economist at Wachovia Securities in Charlotte, North Carolina.

But we do think that the worst of the recession is right behind us, though we are looking for another down quarter in the second quarter, Vitner said.

Analysts polled by Reuters last week expected a government report on Friday to show the economy shed 650,000 jobs last month after losing 651,000 in February. However, a private report on Wednesday that showed 742,000 private-sector jobs were shed suggests job losses could be even greater.

Mounting job losses have led more U.S. consumers to fall behind on loan payments than ever before, according to the American Bankers Association.

In addition, a growing number of people are relying on assistance for things like groceries. A record 32.2 million people -- one in every 10 Americans -- received food stamps at latest count, the government said on Thursday. It was the third time in the last five months that enrollment set a record.

Still, the 1.8 percent rise in factory orders in February after a 3.5 percent drop a month earlier offered the latest glimmer of hope that the economy's decline was easing.

It seems like there is a sense of stabilization in manufacturing. These are early signs, for sure, said Jonathan Basile, an economist at Credit Suisse in New York.

(Additional reporting by Emily Kaiser and Charles Abbott in Washington; Richard Leong in New York; Editing by Jonathan Oatis)

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