WASHINGTON (AP) -- The number of new applications filed last week for unemployment benefits fell sharply, offering a hopeful sign that the recovery in the job market may be gaining some steam.

The Labor Department reported Thursday that the number of new people signing up for unemployment insurance benefits dropped by a seasonally adjusted 37,000 to 335,000, the lowest level since the beginning of September. In the prior three weeks, claims had gone up.

The latest snapshot of the layoffs climate was better than economists were expecting. They were expecting claims to decline to around 355,000.

Claims had risen recently in part because of the impact of hurricanes that pummeled Florida and elsewhere, wreaking damage and disrupting commerce.

The more stable, four-week moving average of claims, which smooths out week-to-week fluctuations, rose by 4,250 last week to 348,500. That compares with 394,250 a year ago -- showing improvement has been seen over the past year.

The number of people continuing to draw unemployment benefits declined by 1,000 to 2.86 million for the week ending Sept. 25, the most recent period for which that information is available. A year ago, the number stood at 3.57 million.

The Federal Reserve, citing some improvements in the economy, boosted short-term interest rates for a third time this year in September. Many analysts expect the Fed will increase rates again at its next meeting in November. A few, however, believe the Fed might take a pass in November and raise rates in December, the last meeting of the year.

President Bush and his Democratic opponent, John Kerry, paint very different pictures about how the economy and the labor market are faring as they try to woo voters with Election Day just a few weeks away.

Many economists are forecasting a net gain of around 150,000 jobs for September, which would mark a bit of an improvement over the 144,000 jobs added in August. The nation's unemployment rate is expected to hold steady at 5.4 percent.

Even though payrolls have grown by 1.7 million in the last 12 months, the economy is still down by a net 913,000 jobs since Bush took office. The government releases the employment report for September on Friday. The jobs report, the last to be issued before the Nov. 2 elections, will be closely watched by the presidential campaigns, economists and Fed Chairman Alan Greenspan and his Fed colleagues.