* Core capital goods orders fall 0.1 percent in June
* Core capital goods shipments rise 0.2 percent
* Goods trade deficit narrows 3.7 percent in June
* Retail, wholesale inventories increase 0.6 percent
WASHINGTON, July 27 (Reuters) - New orders for key U.S.-made capital goods unexpectedly fell in June, but a fifth straight monthly increase in shipments suggested that business spending on equipment supported economic growth in the second quarter.
Expectations that growth accelerated in the second quarter were also bolstered by other data on Thursday showing a sharp narrowing in the goods trade deficit in June and increases in both retail and wholesale inventories.
The pick-up in gross domestic product, together with a tightening labor market, would likely keep the Federal Reserve on track to announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities in September and raise interest rates in December for a third time this year.
The U.S. central bank left rates unchanged on Wednesday and said it expected to start winding down its portfolio "relatively soon."
The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, slipped 0.1 percent last month. That was the first drop since December and followed an upwardly revised 0.7 percent jump in May.
May's increase in these so-called core capital goods orders was the biggest since January. Core capital goods orders were previously reported to have gained 0.2 percent in May.
Economists polled by Reuters had forecast core capital goods orders rising 0.3 percent last month. Shipments of core capital goods increased 0.2 percent after rising 0.4 percent in May. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.
They have risen for five straight months. Business spending on equipment added 0.42 percentage point to the economy's 1.4 percent annualized growth pace in the first quarter.
The dollar held steady against a basket of currencies after the data, while prices for U.S. government bonds were trading lower.
GOODS TRADE DEFICIT NARROWS
The increase in equipment spending has mostly been driven by the energy sector, where oil and gas drilling has increased significantly after declining in the aftermath of the collapse in crude oil prices.
The energy sector recovery is helping to support manufacturing by offseting some of the drag from declining motor vehicle production. Manufacturing accounts for about 12 percent of the U.S. economy.
In other reports on Thursday, the Commerce Department said the goods trade deficit fell 3.7 percent to $63.9 billion in June amid a rise in exports. Goods exports increased $1.8 billion to $128.6 billion last month.
Imports of goods fell $0.7 billion to $192.4 billion. Separately, both retail and wholesale inventories increased 0.6 percent in June. The government will publish its advance second-quarter GDP estimate on Friday. The Atlanta Fed is forecasting growth increasing at a 2.5 percent rate on the second quarter.
While another report from the Labor Department on Thursday showed initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 244,000 for the week ended July 22, layoffs remain low and are consistent with a tightening labor market.
Claims have now been below 300,000, a threshold associated with a robust labor market for 125 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller. The labor market is near full employment, with the jobless rate at 4.4 percent.
Claims are volatile around this time of the year as automakers shut assembly plants for annual retooling. Some manufacturers like General Motors are extending their summer shutdowns to manage excess inventory from falling sales.
Economists say this could be throwing off the model used by the government to strip out seasonal fluctuations from the data, causing swings in the weekly numbers.
(Reporting By Lucia Mutikani; Editing by Andrea Ricci)