The U.S. current account deficit contracted slightly in the three final months of 2012 because a larger income surplus helped offset an expanding trade gap.

The broad measure of U.S. international transactions registered a shortfall of $110.42 billion during in the fourth quarter of 2012, or 2.8% of gross domestic product, the Commerce Department said Thursday. The figure is down a bit from the upwardly revised $112.45 billion gap in the prior period.

Economists surveyed by Dow Jones Newswires had forecast a deficit of $112.6 billion. The deficit figure measures mostly trade in goods and services but also includes transfer payments and investment income.

The deficit on goods and services increased to $128.4 billion in the fourth quarter from $124.8 billion in the third quarter in part because imports rose. The U.S. also shipped fewer goods, but did increase exports of services during the quarter. Prior data, however, showed that the trade gap narrowed in December.

Meanwhile, the Commerce report showed that the U.S. surplus on income increased to $52.4 billion in the fourth quarter from $46.6 billion the prior period.

Unilateral current transfers, items such as foreign aid from the U.S. to other countries and U.S. immigrants remittances to families abroad, increased slightly to $34.4 billion last quarter. Unilateral transfers contribute to the current account deficit.

Despite the smaller gap, carrying a hefty current account deficit requires the U.S. to attract large amounts of financing from abroad, including from China, or the dollar will lose its value.

Private foreign purchases of U.S. Treasurys exceeded sales by $26.0 billion in the fourth quarter, the Commerce Department report said. China remains the largest foreign holder of U.S. government debt, separate Treasury data showed.