UPDATE 1-U.S. trade gap narrows in January

reuters.com Wed March 12, 2003 08:52 AM ET (Adds more detail from report)

WASHINGTON, March 12 (Reuters) - The U.S. trade deficit narrowed sharply in January to $41.1 billion, but was still the second-highest on record despite an upturn in exports, the government said on Wednesday.

Rising oil prices ahead of a possible war in Iraq helped keep the trade deficit at near-record levels, the Commerce Department data showed.

Oil prices in January were the highest since November 2000, with the increase from December was the largest month-to-month jump since September to October 1990, which followed Iraq's invasion of Kuwait in August of that year.

The 8.4 percent reduction in the trade gap from the record in December was the largest monthly drop in just over a year and exceeded market expectations. Analysts polled before the report pegged the January trade deficit at $42.8 billion.

In a possible sign of weakening U.S. demand, imports fell 2.0 percent to $123.0 billion, but still were high by historical standards.

Exports rose 1.6 percent to $81.9 billion, led by higher shipments of capital and consumer goods.

U.S. imports from Venezuela, a major oil producer, in January fell to their lowest level since February 1989, as a general strike crippled that country's oil exports.

The U.S. trade deficit with China narrowed fractionally to $9.4 billion in January, while the monthly trade gap with the 15 member states of the European Union dropped by nearly 30 percent to $6.5 billion.

Tensions between the United States and two key European Union members, France and Germany, have rattled companies on both sides of the Atlantic, which fear the foreign policy disagreement could spill over into the trade arena.

Jean-Francois Boittin, economic counselor at the French Embassy, said he saw little chance any European country would express its displeasure by blocking imports of U.S. goods.

"I think cooler heads will prevail," Boittin told Reuters in an interview.