By Lucia Mutikani and Doug Palmer

WASHINGTON (Reuters) - 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 late morning, the blue-chip Dow Jones industrial average was up about 80 points or nearly 0.8 percent.

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.