(Adds services sector data, updates markets)
* Trade deficit increases 8.4% to $55.5 bln in May
* Goods imports jump 4.0%; goods exports rise 2.8%
* Weekly jobless claims fall 8,000 to 221,000
* Private payrolls increase 102,000 in June
WASHINGTON, July 3 (Reuters) - The U.S. trade deficit jumped to a five-month high in May as imports of goods increased, likely as businesses restocked ahead of an increase in tariffs on Chinese merchandise, overshadowing a broad rise in exports.
The wider trade deficit reported by the Commerce Department on Wednesday added to weak housing, manufacturing, business investment and moderate consumer spending in suggesting that economic growth slowed in the second quarter. The labor market also appears to be losing momentum, with private employers adding far fewer-than-expected jobs to their payrolls in June.
News on the vast services sector was also downbeat.
The slowdown in activity as last year's massive stimulus from tax cuts and more government spending fades could prompt the Federal Reserve to cut interest rates this month. The U.S. central bank last month signaled it could ease monetary policy as early as at its July 30-31 meeting, citing rising risks to the economy from the trade war between the United States and China, and low inflation.
The trade deficit surged 8.4% to $55.5 billion. Data for April was revised higher to show the trade gap widening to $51.2 billion instead of the previously reported $50.8 billion. Economists polled by Reuters had forecast the trade gap widening to $54.0 billion in May.
The goods trade deficit with China, a focus of President Donald Trump's "America First" agenda, increased 12.2% to $30.2 billion, with imports rising 12.8%. Trump imposed additional import tariffs on Chinese goods, after a breakdown in negotiations, prompting Beijing to retaliate.
Trump and Chinese President Xi Jinping last week agreed to a trade truce and a return to talks. White House trade adviser Peter Navarro said on Tuesday talks were heading in the right direction, but it would take time to get the right deal made.
The U.S.-China trade tensions have caused wild swings in the trade deficit, with exporters and importers trying to stay ahead of the tariff fight between the two economic giants.
The dollar dipped against a basket of currencies in thin U.S. trade ahead of Thursday's Independence Day holiday. U.S. Treasury prices rose and stocks on Wall Street were higher.
In May, goods imports increased 4.0% to $217.0 billion. Apart from drawing more imports from China, imports from the European Union, Mexico and Canada increased to record highs in May. Imports of consumer goods rose $1.4 billion, while those of motor vehicle and parts soared $2.3 billion to an all-time high. There were also big increases in imports of capital goods and industrial supplies and materials. Some of the jump in the import bill in May also reflected higher petroleum imports and more expensive crude oil.
Goods exports rose 2.8% to $140.8 billion. Exports of consumer goods increased $0.8 billion and soybean exports advanced $0.7 billion.
Civilian aircraft exports rose $0.5 billion. Gains are, however, likely to be capped after Boeing in March suspended deliveries of its fastest-selling MAX 737 jetliner. The aircraft was grounded indefinitely following two deadly crashes in five months. Production of the plane has been cut.
When adjusted for inflation, the goods trade deficit increased $4.8 billion to $87.0 billion in May. The increase in the so-called real goods trade deficit suggests that trade could be a drag on second-quarter gross domestic product.
Trade contributed 0.94 percentage point to the economy's 3.1% annualized growth pace in the first quarter. The Atlanta Fed is forecasting gross domestic product rising at a 1.5% rate in the April-June quarter.
The ADP National Employment Report on Wednesday showed private payrolls increased by 102,000 jobs in June, accelerating from 41,000 in May. The increase was well below economists' expectations for a payrolls gain of 140,000.
The ADP report, which is jointly developed with Moody's Analytics, potentially suggests a moderate rebound in the private payrolls component of the government's employment report. It came ahead of the release on Friday of the government's more comprehensive jobs data for June.
Economists polled by Reuters are looking for nonfarm employment to have increased by 160,000 jobs after rising by only 75,000 in May. Job growth has slowed to an average of 164,000 per month this year from 223,000 in 2018 as workers become scarce and the economy slows.
The pace of job gains, however, remains above the roughly 100,000 per month needed to keep up with growth in the working age population. The unemployment rate is expected to have held near a 50-year low of 3.6% in June for a third straight month.
Though hiring is slowing, employers are hanging on to their workers. A third report from the Labor Department on Wednesday showed initial claims for state unemployment benefits dropped 8,000 to a seasonally adjusted 221,000 for the week ended June 29. Economists forecast claims dropping to 223,000 last week.
In a fourth report, the Institute for Supply Management said its non-manufacturing activity index fell to 55.1 in June, the lowest reading since July 2017, from 56.9 in May.
A reading above 50 indicates expansion in the sector, which accounts for more than two-thirds of U.S. economic activity. Economists polled by Reuters had forecast the index falling to 55.9 last month.
The ISM said "a degree of uncertainty exists due to trade and tariffs." The June drop in services industry activity reflected declines in measures of production, new orders and employment.
(Reporting By Lucia Mutikani; Editing by Andrea Ricci)