By Lucia Mutikani
WASHINGTON (Reuters) - The number of Americans filing new claims for jobless benefits fell more than expected last week while activity in the services sector hit a six-month high in March, underscoring the economy's solid fundamentals despite a recent softening in growth.
Harsh weather, the now-settled labor dispute at the country's busy West Coast ports, softer global demand and a strong dollar undercut growth early in the first quarter.
Thursday's upbeat reports, however, implied the slowdown would be temporary.
"The good news is that claims and the services sector data suggest the economy has gained some momentum heading into the second quarter," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 282,000 for the week ended March 21, the Labor Department said.
That was the lowest level since mid-February and was better than economists' expectations for a dip to 290,000.
The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 7,750 to 297,000 last week.
In a separate report, financial data firm Markit said its preliminary or "flash" Purchasing Managers Index for the service sector rose to 58.6 in March, the highest reading since September, from 57.1 in February.
A reading over 50 signals expansion in the vast services sector. Survey respondents said economic conditions were improving and reported an increase in new orders and an accumulation of backlogs.
Services industry employment growth increased at its fastest pace in nine months in March.
Prices for U.S. government debt fell, while the dollar rose against a basket of currencies. U.S. stocks were trading lower after Saudi Arabia and its allies launched air strikes on Yemen.
The sturdy jobs and services sector picture is in stark contrast with dour reports on manufacturing, home building, consumer spending and trade, which have suggested the economy has hit a soft patch.
The tepid growth and persistently low inflation could see the Federal Reserve delaying raising interest rates until later this year. The U.S. central bank has kept its short-term interest rate near zero since December 2008.
Atlanta Federal Reserve Bank president Dennis Lockhart said at an investment education conference in Detroit the recent lull in activity was temporary and was not a sign that the economy was shifting to slower growth.
The economy added 295,000 jobs in February, marking the 12th straight month that employment gains have been above 200,000, the longest such run since 1994.
Thursday's claims report showed the number of people still receiving benefits after an initial week of aid fell 6,000 to 2.42 million in the week ended March 14.
"The sustained low reading on continuing claims suggests the trend to a tighter labor market remains intact," said John Ryding, chief economist at RDQ Economics in New York.
The so-called continuing claims covered the period during which the government surveyed households for March's unemployment rate.
Continuing claims rose marginally between the February and March survey periods, suggesting little change in the jobless rate. The unemployment rate fell to a more than 6-1/2-year low of 5.5 percent in February.
(Reporting By Lucia Mutikani; Editing by Andrea Ricci)