Reuters reported that new claims for jobless aid in the US rose last week while consumer prices notched their largest decline in nearly 1 and a half years in May 2010, suggesting interest rates will remain ultra low to nurse the fragile economic recovery.

Fears growth was slowing were heightened by news that factory activity in June in the country's Mid Atlantic region braked to its slowest pace in 10 months. Analysts had generally expected the recovery from the most painful recession since the 1930s to moderate in the second half of this year as a boost from a rebuilding of business inventories and massive stimulus from the government faded.

Ms Keith Hembre chief economist at First American Funds in Minneapolis said that "We are seeing that now. It is slowing as the temporary lifts from the stimulus and inventories recede, but not something that is consistent with a contraction of the economy."

Absent a credit shock from the sovereign debt crisis that started in Greece, analysts do not expect the domestic economy to slip back into recession. Belt tightening by European governments already looks set to slow economies there and take a small bite out of US growth.

Labor Department said that initial claims for state unemployment benefits increased 12,000 to 472,000 last week as manufacturing, construction and education sectors shed workers.

In a second report, the department said the Consumer Price Index fell 0.2% in May 2010, largest drop since December 2008, after dipping 0.1% in April. This came as gasoline prices fell by the most in 17 months.

(Sourced from www.reuters.com)