WRAPUP 1-Housing, labor data provide upbeat signs on US economy
* Jobless claims drop 37,000 last week, lowest in five years
* Four-week average of claims falls 6,750
* Housing starts surge 12.1 percent in December
* Building permits gain 0.3 percent
WASHINGTON, Jan 17 (Reuters) - The number of Americans filing new claims for unemployment benefits tumbled to a five-year low last week, a hopeful sign for the sluggish labor market.
Other data on Thursday showed a surge in residential construction last month, suggesting the housing market was now positioned to support the economy's recovery this year.
Initial claims for state unemployment benefits fell 37,000 to a seasonally adjusted 335,000, the lowest level since January 2008, the Labor Department said. It was the largest weekly drop since February 2010.
"This is a good sign for the January nonfarm payrolls," said David Sloan, an economist at 4CAST in New York.
While last week's decline ended four straight weeks of increases, it may not signal a material shift in labor market conditions as claims tend to be very volatile around this time of the year.
This is because of large swings in the model used by the department to iron out seasonal fluctuations.
U.S. stock index futures extended gains on the data, while Treasury debt prices fell. The dollar rose against the yen and pared losses against the euro.
The four-week moving average for new claims, a better measure of labor market trends, fell 6,750 to 359,250, suggesting some improvement in underlying labor market conditions.
The claims data covered the survey week for January's nonfarm payrolls. Job growth has been gradual, with employers adding 155,000 new positions in December. The unemployment rate held steady at 7.8 percent last month.
A second report from the Commerce Department showed housing starts jumped 12.1 percent last month to a 954,000-unit annual rate, the highest level since June 2008.
Groundbreaking was boosted by a 20.3 percent surge in multi-family unit construction, with single-family starts rising 8.1 percent. Permits for future home construction rose 0.3 percent to a 903,000-unit rate, the highest since July 2008.
The housing market has regained some footing after a historic collapse that helped push the economy into its worst recession since the Great Depression. Residential construction in 2012 is expected to have contributed to growth for the first time since 2005 and is expected to be the key driver this year.
"Housing is a bright spot in the economy and we should see that continue into the end of the year," said Yelena Shulyatyeva an economist at BNP Paribas in New York.
The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid increased 87,000 to 3.21 million in the week ended Jan. 5.
The four-week average of the so-called continuing claims was the lowest since July 2008.