The number of U.S. workers filing new claims for jobless benefits rose more than expected last week, but a surprise narrowing in the trade gap in October indicated the economy remained firmly on a steady growth path.

Initial claims for state unemployment insurance rose 17,000 to 474,000 last week, after five straight weeks of declines, the Labor Department said on Thursday.

The rise in claims was blamed on seasonal layoffs in industries such as construction and a rebound in applications that had been held back during the Thanksgiving holiday week.

Analysts, who had expected claims to climb but only to 460,000, said the gain did not alter the trend toward labor market stability. Instead, they focused on a 14th straight drop in a four-week average of claims, which hit the lowest since September last year.

In another report, the Commerce Department said the U.S. trade deficit shrank 7.6 percent to $32.9 billion in October as a weak dollar helped boost exports. Analysts had expected the gap to widen to about $36.8 billion.

The recovery is sustaining its moderate momentum. The concern has been it would lose momentum and relapse in the way of a double-dip recession. I don't see anything in this or recent data suggesting this, said Stuart Hoffman, chief economist PNC Financial Services Group in Pittsburgh.

The reports helped lift U.S. stock prices. In afternoon trade, the blue-chip Dow Jones industrial average <.DJI> was up about 60 points or nearly 0.6 percent.

In another boost to the economy, U.S. households' net worth -- the difference between the value of assets and liabilities -- rose $2.7 trillion to $53.4 trillion in the third quarter, Federal Reserve data showed.

The second consecutive quarterly increase in household wealth could be a confidence booster for consumers shouldering the burden of high unemployment.

The increase in household net worth will prove to have a positive psychological impact on households that will likely lead to more spending in 2010, said Bernard Baumohl, chief global economist at the Economic Outlook Group in Princeton, New Jersey.

Analysts said the unexpected narrowing in the trade gap, combined with a report on Wednesday showing wholesalers started restocking in October, improved the chances of the economy expanding at a more brisk pace in the fourth quarter than the 2.8 percent annualized rate seen in the July-September period.

Paul Dales, a U.S. economist at Capital Economics in Toronto, said trade could contribute around 1 percentage point to fourth quarter gross domestic product after subtracting 0.8 percentage point in the third quarter.

WORLD TRADE GROWING

In a sign that world trade is slowly shaking off the effects of the global financial crisis, U.S. exports of goods and services hit their highest level since November 2008. Imports also touched their highest point since last December.

The smaller-than-expected trade gap is good news for the Obama administration, which sees export growth as an avenue for creating jobs.

With the U.S. unemployment rate hovering at its highest levels in a quarter century, the weak jobs market is a political sore point for Obama and his fellow Democrats.

Still, the jobs market does appear to be recovering. A report last week showed the jobless rate edged down to 10 percent in November from a 26-1/2-year high of 10.2 percent, while employers cut the fewest jobs since recession struck in December 2007.

Even though jobless claims rose last week, applications for benefits have dropped from lofty levels in March. The four-week average, which provides a better view of underlying trends, dropped to 473,750 last week from 481,500 the prior week.

Analysts said that was a clear signal the economy would soon start creating the much needed jobs to fuel the recovery.

I believe when we get down below 450,000, you are in a position where you're going to get some payrolls jobs growth. We are on the cusp, said PNC Financial Services' Hoffman.

The number of workers still collecting benefits after an initial week of aid dropped 303,000 to 5.16 million in the week ended November 28, the lowest level since February. The decline, however, was largely due to people exhausting their benefits and moving to emergency unemployment programs.

These developments seem to be consistent with the broad sense that new layoffs are slowing significantly, but those who lost their jobs during the recession are still finding it very difficult to get work,' said Stephen Stanley, chief economist at RBS in Greenwich, Connecticut.

The labor market is starting to stabilize, but the level of unemployment is very high.

The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, fell to 3.9 percent in the week ended November 28 -- the lowest since February -- from 4.1 percent the previous week.

(Editing by James Dalgleish)