WASHINGTON (Reuters) - The monthly U.S. budget deficit shrank to $69.6 billion in July from $129.4 billion in the same month a year ago, reflecting a rise in government receipts and a drop in spending.

The Treasury on Friday said receipts totaled $184.6 billion in July, up from $159.1 billion a year ago. Government outlays fell to $254.2 billion, from $288.4 billion a year ago.

The $69.6 billion deficit in July was less than the $103.0 billion budget shortfall expected by analysts in a Reuters poll.

The drop in spending partly reflected $35 billion in recurring benefit payments made on July 1, a Sunday, that were accelerated into June, Treasury said.

July 2012 also had one more business day than July 2011, accounting for about $6 billion in additional receipts.

For the first 10 months of fiscal 2012, the government's budget gap totaled $974 billion, $126 billion below the corresponding year-ago deficit, the Treasury Department said.

Still, the deficit is on track to exceed $1 trillion for the fourth straight year, a statistic Republicans frequently use to accuse the Obama administration of overspending.

(Reporting by Doug Palmer; Editing by Neil Stempleman)