U.S. trade, jobs data encouraging; services sector disappoints

The U.S. trade deficit narrowed in April on a drop in imports, which surged in March following the end of a West Coast ports labor dispute, while companies picked up their hiring in May after a pullback the previous month.

The data supported the notion the U.S. economy has recovered somewhat from a first-quarter contraction and bolstered expectations the Federal Reserve may consider raising interest rates later this year.

Two private reports signaled slower growth in the U.S. services sector, which has propped up the economy as it faced drags from a strong dollar, a recent rise in oil costs and sluggish demand abroad.

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"This is consistent with modest growth. It's enough for the Fed to consider tightening. September is very much on the table," said Christopher Low, chief economist at FTN Financial in New York.

U.S. central bank, which will hold a policy meeting June 16-17, concurred with that view in its latest Beige Book released on Wednesday.

This collection of anecdotes on the economy from early April to late May showed U.S. growth will continue at a "modest" to "moderate" pace, despite weakness in metal and energy industries and a strong dollar crimping exports.

U.S. stock indexes gained 0.4-0.5 percent after the data. The dollar and prices of U.S. Treasuries fell, which traders said was due more to the selling of German Bunds and gains in the euro after the European Central Bank upgraded its inflation outlook

The U.S. Commerce Department on Wednesday said the trade gap narrowed to $40.9 billion from March's revised deficit of $50.6 billion. The 19.2 percent drop in the April trade deficit was the largest decrease since early 2009, and the deficit was about $3 billion less than forecast.

Imports fell 3.3 percent to $230.8 billion as West Coast ports, a key gateway for goods to and from Asia, cleared a backlog created by a labor dispute that was settled earlier this year.