By John S. McClenahen A substantial rise in the number of initial claims for unemployment benefits for the week ending Dec. 29, 2001, is looking like an isolated instance. The latest data from the U.S. Labor Department's Employment & Training Administration show initial claims falling to 395,000 for the week ending Jan. 5. The most recent figure is 56,000 fewer than the revised total of 451,000 initial claims for the week ending Dec. 29 and dramatically lower than the 450,000 that economists were anticipating. What's more, the decline in claims revives a downward trend that had developed toward the end of 2001. However, Merrill Lynch & Co., New York, is cautious about reading too much positive into the recent pattern. "We believe the labor market remains weak and suggests another drop in payroll employment in January," says Karen Dexter, a Merrill Lynch economist. Indeed, the brokerage firm expects initial jobless claims in California to increase next week as benefit payments rise.