While other data on Thursday showed an increase in the number of Americans filing new claims for unemployment benefits, the trend in jobless claims remained consistent with a strengthening labor market.

The Commerce Department said the trade gap narrowed 7.4 percent to $41.9 billion, the smallest since February. June's trade deficit was revised to $45.2 billion from the previously reported $43.8 billion.

When adjusted for inflation, the deficit fell to $56.2 billion in July from $59.0 billion in the prior month.

The smaller deficit implied a modest contribution to gross domestic product from trade early in the third quarter. Trade contributed 0.3 percentage point to the economy's 3.7 percent annualized growth rate in the second quarter.

Data ranging from consumer spending to employment and housing have suggested the economy retained much of its momentum from the second quarter and was on solid footing when global financial markets were rocked by turbulence triggered by worries over China's economy.

U.S. stock index futures extended gains slightly after the data, while the dollar fell further against a basket of currencies. Prices of U.S. government debt rose.

In a separate report, the Labor Department said initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 282,000 for the week ended Aug. 29.

The claims data has no bearing on Friday's closely watched employment report for August as it fell outside the survey period. According to a Reuters survey of economists, nonfarm payrolls likely increased by 220,000 last month after rising 215,000 in July.

But job gains could come in below expectations as the first reading of August payrolls has tended to be weaker in the last several years before being revised higher.

The August employment report will be released less than two weeks before the Federal Reserve's Sept. 16-17 policy-setting meeting. There is speculation the U.S. central bank could raise interest rates at that meeting.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 3,250 to 275,500 last week.

It was the 23rd straight week that the four-week average remained below the 300,000 threshold, which is usually associated with a strengthening labor market.

DOLLAR DRAG

In July, exports increased 0.4 percent to $188.5 billion. While that was the first increase since April, exports remain constrained by a strong dollar. The dollar has gained 16.8 percent against the currencies of the United States' main trading partners since June 2014.

There were increases in exports of food, industrial supplies and materials, and capital goods in July. Automobile exports also rose. Imports fell 1.1 percent to $230.4 billion. However, automobile imports were the highest on record. Imports of consumer goods fell in July.

Exports to China fell 1.9 percent and imports from that country dipped 0.2 percent. That left the politically sensitive U.S.-China trade deficit at $31.6 billion, up 0.4 percent from June. The trade deficit with China will be closely watched in the coming months after that country devalued its currency in August.

Exports to Canada fell 8.3 percent in July and could come under more pressure after the Canadian economy slipped into recession in the second quarter. Exports to recession-hit Brazil were the lowest since February 2010.

Exports to the European Union fell 5.3 percent.