The US trade deficit narrowed more than expected in July as imports declined for the first time in 10 months and exports leapt higher.
Nevertheless, at $50.1 billion, it was still the second highest on record.
US bond price rose and the dollar slipped after an initial rise as investors saw the price report buttressing expectations that the Federal Reserve will take a break at some point this year from the rate-rise cycle it initiated in June.
"That would add to growing expectations of a potential for a pause in the Fed's tightening cycle after the widely anticipated rate hike later this month," said Mr Bob Lynch, currency strategist at BNP Paribas in New York.
The producer price index, a gauge of prices received by farms, factories and refineries, fell 0.1 per cent in August, the US labour department said. The so-called core index, which excludes volatile food and energy prices, also dropped 0.1 per cent - the first decline since February.
The trade gap declined nearly 9 per cent , the biggest monthly drop in 2-1/2 years, from a revised estimate of $55.0 billion in June, the Commerce Department said. Analysts had expected the deficit to narrow, but not so sharply.
"It has been such an ugly number for years now that it is almost as if it doesn't matter in a way," said Mr Robert MacIntosh, chief economist at Eaton Vance Management in Boston. "Although it did come in a little better than expected, it is still an ugly number."
Imports dipped 1.4 per cent to $146 billion, with a drop in oil import prices to $33.28 per barrel after eight consecutive monthly increases helping cut the import bill.
Exports increased 3.0 per cent to $95.9 billion, just $1 billion shy of the record set in May. The rebound included a rise in civilian plane sales, which had fallen sharply in June and helped pushed the trade deficit to a record that month.
Exports of autos and auto parts hit a record in July.
Meanwhile, the politically sensitive US trade deficit with China set another monthly record at $14.9 billion as imports increased 3.7 per cent and exports fell 2.6 per cent .
US manufacturers blame China's policy of pegging its currency against the dollar for the soaring bilateral deficit.