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The number of workers claiming first-time unemployment benefits increased slightly last week but stayed below the key 400,000 level for the fourth week in a row, the Labor Department said.

Jobless claims rose by 2,000 to 398,000 in the week ended Aug. 9. The results were a bit worse than estimates for 390,000 claims. But claims below 400,000 are consistent with labor market growth.

Meanwhile, the four-week average of initial jobless claims -- which adjusts for weekly volatility -- fell by 4,250 to 394,250, its lowest level in about six months, a positive sign for job creation. And continuing jobless claims dropped to 3.657 million, from 3.691 million in the previous week.

Treasuries were lower, as the jobless claims data suggested possible expansion in the labor market. The 10-year note was recently falling 4/32 to 97 13/32, raising its yield to 4.58%.

Despite the bond market reaction, the job market continues to be a source of worry for economists. "While there are gradual signs of improvement in the labor market, employment still appears to be lagging economic growth," said Jay Nazareth, an economist at J.P. Morgan, in a research note. Companies continue to reduce their staffs. Just this week,

Charles Schwab


said it would cut another 250 jobs.

In another report, the Labor Department said that its producer price index advanced 0.1% in July -- in line with economists' expectations. The core index, which excludes volatile food and energy prices, rose 0.2% in July, slightly ahead of forecasts for a 0.1% gain. Core prices fell 0.1% in June.

Energy prices rose a modest 0.3%, following a 3.4% surge in energy prices in June. Meanwhile, food prices fell 0.2% in July, after posting a 0.4% increase in June.

Pricing power has been a concern for the

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Federal Reserve

, which earlier this week said the risk of deflation continues to outweigh that of inflation, and held interest rates at historically low levels.

"Last month's result showed a bit more finished goods price strength but intermediate goods prices continued to be soft," said Peter Kretzmer, an economist at Bank of America, in a research note.

Finally, the government said the trade deficit shrank to $39.55 billion in June from $41.48 billion in May, as exports increased and imports were virtually unchanged. The narrowing will be a boost to GDP.

While the reports were benign, equities were mixed. The


was falling 0.2%, to 9249.6; the


was up 1.54%, to 1688.2; and the

S&P 500

was flat at 984.