* Q2 GDP revision, jobless claims seen giving Fed leeway
* Decent demand seen for Treasury sale of $29 bln in 7-yr notes
* Stock gains weigh on bonds
* Fed bought $1.566 billion in Treasuries
By Ellen Freilich
NEW YORK, Aug 29 (Reuters) - U.S. Treasuries prices were narrowly lower on Thursday after the government reported economic data that appeared to give the Federal Reserve leeway to trim its economic stimulus and as traders positioned for the Treasury's seven-year note auction.
The Labor Department said jobless claims fell last week, and the Commerce Department said the economy grew more quickly in the second quarter than earlier reported - at a 2.5 percent pace instead of the 1.7 percent reported previously.
The benchmark 10-year Treasury note price was down 4/32. Its yield stood at 2.79 percent, up from 2.77 percent late on Wednesday.
"After nearly four years now of a very sluggish recovery, it appears that we may finally be moving closer toward trend growth in the United States," said Chris Molumphy, chief investment officer of the Franklin Templeton Fixed Income Group in San Mateo, California.
The prospect of a stronger economy also lifted prices of riskier assets at the expense of safe-haven U.S. bonds.
On the other hand, the losses in the bond market were narrow, indicating that investors remained cautious ahead of next week's influential U.S. employment report and the upcoming three-day weekend amid heightened geo-political tension.
"We did see some of the flight to safety that occurred earlier in the week reversed on Wednesday, and the market is thinking that's enough of a reversal because the Syria situation is still uncertain," said Anthony Valeri, fixed income strategist at Boston-based LPL Financial, with $338 billion in assets under management.
President Barack Obama told Americans a military strike against Syria is in their interest following a gas attack last week, and Britain said armed action would be legal, but intervention looked set to be delayed until U.N. investigators report back.
The Labor Department's report that new claims for unemployment insurance fell last week was also seen as a possible sign of faster hiring in August, another element that could give the Fed room to slim down its economic stimulus.
"The outlook for the economy seems pretty good with these latest stats, not too cool, not too hot certainly. Is it good enough for the Fed to taper QE, is the million dollar question," said Chris Rupkey, managing director and chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
CRT Capital Group Treasury strategist David Ader said "to the extent anyone is still trying to split hairs over tapering," the drop in new jobless claims puts "yet another notch in the coffin of QE."
The GDP report gave a more mixed verdict, with trade and inventories contributing to the strong upward revision, but final sales and investment in equipment and software revised down, Ader noted. The core personal consumption expenditure inflation index remained at 0.8 percent.
Economists at Goldman Sachs said their tracking estimate for third-quarter GDP remained unchanged at 1.7 percent.
Meanwhile, traders positioned for the Treasury's auction of $29 billion in seven-year notes at 1 p.m. (1700 GMT), the third and final coupon auction of the week.
Cantor Fitzgerald Treasury strategist Justin Leder said the seven-year note auction would draw "decent" demand.
"Overall, current yields, albeit off their highs - the high last week was 2.363 percent - will prove attractive," he said, citing month-end portfolio maturity extensions and uncertainty about what could develop in Syria, especially ahead of a long holiday weekend.
The Fed bought $1.566 billion in bonds maturing from February 15, 2036 to February 15, 2043.
U.S. financial markets will be shut on Monday for the Labor Day holiday.