WASHINGTON, D.C.: U.S. producer prices were unchanged in July as falling goods prices offset a modest increase in services costs, adding to expectations that the Federal Reserve could leave interest rates unchanged at its September meeting.

The flat reading in the Producer Price Index for final demand followed a revised 0.1% decline in June, the Labor Department's Bureau of Labor Statistics said. Economists polled by Reuters had expected prices to rise 0.2%.

Producer prices increased 4.7% in the 12 months through July, slowing from a 5.5% rise in June.

The figures followed mild consumer inflation data released Wednesday and came after last week's employment report showed unexpected job losses in July, further reducing expectations of a near-term rate increase.

"It's now looking far less likely that the FOMC will feel the need to hike as soon as September," said Stephen Brown, chief North America economist at Capital Economics.

Financial markets were pricing in a roughly 67.6% chance that the Fed would keep its benchmark overnight interest rate in the 3.50%-3.75% range at its September 15-16 meeting. The probability of a rate hike fell to 32.4% from 40.6% Wednesday and 55% a week earlier.

Goods prices declined 0.7% in July after falling 1.4% in June. Energy prices dropped 3.1%, while wholesale gasoline prices fell 5.7%. Food prices decreased 0.9%.

Services costs rose 0.2% after increasing 0.5% in June, boosted by a 6.5% jump in portfolio management fees. Airline fares declined 3.4%, while hospital outpatient prices increased 0.9%.

Economists expect the Personal Consumption Expenditures price index, which the Fed tracks for its 2% inflation target, to rise 0.1% in July. Estimates for the core PCE index, excluding food and energy, centered around a 0.2% increase.

Some economists cautioned that inflation remains sufficiently elevated to keep a rate increase possible.

"That seems like a pretty cut and dried argument for hiking in September, pending the August CPI figures," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets.

Separate Labor Department data showed initial claims for unemployment benefits increased by 9,000 to a seasonally adjusted 209,000 in the week ended August 8. Continuing claims fell by 22,000 to 1.777 million in the week ended August 1.

Stocks on Wall Street rose following the data, while the dollar weakened against a basket of currencies and U.S. Treasury yields declined.