Federation of Connecticut Taxpayer Organizations

WASHINGTON (Reuters) - The U.S. trade deficit widened to a record $43.1 billion in January, as rising oil prices helped keep imports near historic highs and exports retreated despite the weaker dollar, the Commerce Department said on Wednesday.

The monthly trade gap was larger than the mid-point analyst estimate of $42.1 billion. Average prices for imported oil leapt to $28.55 per barrel in January, the highest since March 2003.

Jon Lonski, chief economist at Moody's Investors Service (News - Websites) in New York, said the widening trade gap was "consistent with other signs of an economy that appears to be losing its footing" and therefore could weigh on stock prices.

"All in all, this is not news that might help us discount recent signs of a softer economy, especially as it relates to the labor market," Lonski added.

Pierre Ellis, senior international economist at Decision Economics in New York, said the wider-than-expected trade gap was "a bit discouraging" for investors hoping to see an improvement in the yawning current account deficit -- the widest measure of U.S. trade and investment flows -- and would also likely cut economic growth early in 2004.

"With respect to the American economy, this tends to put downward pressure on first quarter estimates of GDP," he said.

Imports dipped slightly from the record set in December, but were still the second highest ever at $132.1 billion. Imports from China posted a 6.6 percent gain, pushing the monthly trade gap with that country to $11.5 billion.

China has faced pressure from the United States to move to a flexible exchange rate because of complaints that its practice of pegging its currency at 8.28 yuan to dollar gives it an unfair advantage by artificially depressing the price of its exports.

But Chinese data released on Tuesday showed the country posted a $7.87 billion trade deficit in February, compared to a trade surplus of $680 million in February 2003, as imports jumped 77 percent from the previous year.

U.S. exports slipped slightly to $89.0 billion in January, the second consecutive monthly decline. Although the euro has borne the brunt of the weaker dollar, exports to the 15-member European Union (News - Websites) edged lower during the month. Shipments to other major destinations such as Canada, Mexico, Japan and China also were lower.

Sean Callow, currency strategist at IDEAglobal in New York, said the trade report will reinforce expectations for the dollar to continue to weaken.

"I don't think (the report) changes the big picture. Those who are bearish on the dollar over the course of the year will have their expectations reinforced. They will see this in line with that bearish view, that the dollar still has further to fall to help correct the (trade) deficit," he said.

However, the dollar lost ground only briefly before shooting up against major currencies after the new record trade deficit was reported.

Meanwhile, the Mortgage Bankers Association said U.S. applications for mortgage loans rose 1.2 percent last week as mortgage rates dropped. Economists expect low interest rates to spur more requests for loans to refinance mortgages and buy homes in coming weeks.