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Futures Point to Lower Open as Rally Fades

U.S. stocks were set for a lower open on Thursday as investors weighed hints of an improving economy against increasing disorder in Egypt and signs pointing to an end to the recent rally.

New U.S. claims for unemployment benefits dropped more than expected last week, a government report showed on Thursday, pointing to continued gradual improvement in the labor market.

Initial claims for state unemployment benefits tumbled 42,000 to a seasonally adjusted 415,000, the Labor Department said, unwinding most of the previous week's weather-induced spike.

Economists polled by Reuters had forecast claims dropping to 420,000. The prior week's figure was revised up to 457,000, from the previously reported 454,000.

Meanwhile, the work force was more efficient last year with productivity rising at the fastest pace in eight years while labor costs fell for a second straight year, something that hasn't happened in nearly five decades.

The Labor Department says that productivity, the amount of output per hour of work, rose a strong 3.6 percent in 2010 after a 3.5 percent gain in 2009, with both years the best showing since 2002. Labor costs dropped 1.5 percent last year after a 1.6 percent decline in 2009.

Other economic data Thursday includes U.S. December factory orders and the Institute for Supply Management's (ISM) January non-manufacturing index, both at 10 a.m. ET.

Factory orders are expected to have declined by 0.5 percent in December after rising 0.7 percent in November.

December's non-manufacturing ISM index is expected to be read 57.0, about in-line with November.

Meanwhile, a handful of retailers reported better-than-expected monthly sales reportsand also raised fourth-quarter earnings estimates.

On the earnings front, Merck reported results that topped forecasts, but its profit outlook for the current year was below what analysts were expecting. Rival GlaxoSmithKline posted a loss after taking a massive charge to provide for U.S. litigation over its diabetes drug, Avandia.

Royal Dutch Shell disappointed investors with below-forecast quarterly profit, with concerns over its refining business overshadowing a sharp rise driven by higher oil prices.

Unilever reported forecast-beating quarterly profitand said it was confident about dealing with soaring commodity costs and competition.

Prices are soaring across a range of commodities, with copper hitting another fresh high and wheat futures rising to a 2-1/2 year high on Wednesday. Sugar climbed to a more-than-30-year high as Cyclone Yasi hit Australia.

Oil prices rose above $103 per barrel after violent clashes in Egyptraised the prospect of further unrest in the Middle East.

Billionaire investor Jim Rogers told CNBC on Thursdayhe expected to see more political and social unrest in the future, driving commodity prices up even further, adding he invested in more in commodities than in stocks.

Overseas, the European Central Bank kept interest rates on hold at a record low of 1 percentas expected on Thursday, despite rising inflation fears.

Euro zone inflation hit 2.4 percent in January, topping the ECB's target of below, but close to 2 percent for the second month in a row.

Nevertheless, all 82 economists in a Reuters poll predicted the ECB would leave rates at 1 percent for the 21st meeting running this month.

The current median expectation among economists is for no change until the fourth quarter of 2011 although financial market investors have started to bet on a rise in the third quarter.

While Bernanke, who speaks at a 12:30 pm New York time lunch at the National Press Club, sees no inflation threat, Trichet has warned that inflation numbers merit “very close monitoring”as they may rise further in the coming months due to higher energy costs.

Trichet's comments about inflation last month helped send the euro higher against the dollar on expectations the ECB would be first to move rates higher.

On Tap This Week:

THURSDAY: Jobless claims, productivity and costs, factory orders, ISM non-manufacturing index, Bernanke at National Press Club, Minneapolis Fed President speaks, Verizon begins iPhone pre-orders; Earnings from Sunoco
FRIDAY: Nonfarm payrolls; earnings from Aetna.

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