Record $11.4bn deficit hits dollar and shares

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The Independent Online

Economics Correspondent

America's trade shortfall reached a record $11.43bn in May. The unexpected rise in the deficit was blamed for a slide in the dollar and sharp fall in share prices on Wall Street.

The Dow Jones Average fell 50 points by mid-morning, and ended the day down 50.01 points at 4,686.28.

Analysts said the trade figures provided the excuse for profit-taking after the surge in share prices of the past two weeks.

The dollar closed below DM1.39, and also finished down against the yen at Y88.4 after holding steady earlier in the day.

May's trade gap was a fraction higher than April's. The sensitive bilateral deficit with Japan fell from $5.9bn to $5.5bn during the month, but the decline was seasonal. The gap was still 25 per cent higher than in the same month last year.

Mickey Kantor, the US trade representative, said he would like to see more improvement in the deficit with Japan. The increase in total US exports was encouraging, up 18 per cent year on year.

During the month, exports grew by 1.3 per cent, reversing a fall of the same size in April. The increase occurred despite a 19 per cent drop in aircraft shipments overseas.

The US deficit with Mexico, a big factor behind the increasing trade gap this year, expanded again to $1.6bn. However, America's deficits with western Europe and Canada rose, too.

Higher oil imports also hit the figures. They were at their highest level since November 1990, when stocks were built up before the Gulf war.

Administration officials maintained an optimistic tone about trends in trade. Everett Ehrlich, the commerce under-secretary, said of the deficit: "There is reason to think we've seen the peak."

Wall Street economists were more cautious. Kathleen Stephansen, an economist at brokers Donaldson Lufkin and Jenrette, said: "It will force people who were looking for the economy to bounce back to revise their expectations."

Some Wall Street analysts cited the damage to growth prospects as a reason for the sharp fall in share prices yesterday. But, most saw the drop as a correction after recent advances in technology stocks.