Greenspan stays calm as trade deficit hits $58bn

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America's trade deficit climbed to $58.4bn (£30.3bn) in January, confounding hopes that the country was beginning to get its external accounts in order, and sending the dollar lower against most major currencies.

According to the Commerce department, US exports rose that month by 1 per cent to a record $100.8bn - but imports, fuelled by record shipments of cars and consumer goods, climbed by almost double that pace to $159.1bn. The result was the country's second-largest monthly deficit, exceeded only by the $60.3bn shortfall last November.

The news immediately pushed up the euro by a quarter of a cent to $1.3458, while sterling also rose. The latest returns suggest that while the large recent fall in the dollar has boosted US exports, it has not dented the country's voracious appetite for imports. The January deficit came despite a slight drop in the median cost of oil imports, to $35.35 a barrel from $36.63 in December.

Over the past quarter, the trade deficit has run at an annual rate of $700bn, equal to about 6 per cent of US gross domestic product. In effect, it is being financed by heavy buying of US government securities as central banks in Asia and Europe recycle their surplus dollars.

But markets increasingly worry how long this can go on - whether an estimated 80 per cent of excess world savings will continue to flow into a depreciating asset to cover America's deficits. In recent days, the merest hints that Japan and South Korea were moving to diversify their reserves sent the dollar tumbling.

In an attempt to calm these fears, Alan Greenspan, the Federal Reserve chairman, predicted that the dollar's decline would eventually correct the trade imbalance. "The resolution of our current account deficit ... does not strike me as overly worrisome," he told the Council of Foreign Relations in New York. Mr Greenspan added that the federal budget deficit, forecast at $400bn for fiscal 2005, was a greater long-term problem.