Feb. 11 (Bloomberg) -- The U.S. trade deficit narrowed in December to the smallest in almost six years, with both exports and imports declining for the fifth straight month as consumers worldwide pulled back their spending.

The gap between imports and exports shrank 4 percent to $39.9 billion, from a revised $41.6 billion deficit in November that was wider than previously estimated, the Commerce Department said today in Washington.

“Trade is collapsing globally; whether it’s imports or exports, there’s a net benefit from trade that lifts all economies, and we’re losing that now,” said Christopher Low, chief economist at FTN Financial in New York. “We’ll see a rise in protectionist sentiment.”

Crumbling demand from overseas may reinforce calls from some U.S. firms for a “Buy American” provision in President Barack Obama’s stimulus plan, while nations including France and Russia take steps to protect local jobs and production. Trade flows are likely to keep contracting as the bite from job losses and the credit crunch tightens worldwide.

The threat of trade barriers as governments seek to aid struggling industries and workers is emerging as a key theme for this week’s meeting in Rome of finance ministers and central bankers from the Group of Seven nations.

“There is growing concern about sprouting protectionism,” German Deputy Finance Minister Joerg Asmussen told reporters today in Berlin.

Wider Deficit

The U.S. trade gap for December was wider than economists had forecast. The median estimate was for $35.7 billion, after an initially reported $40.4 billion in November, according to a Bloomberg News survey of 70 economists. Deficit projections ranged from $31 billion to $45 billion.

For all of 2008, the U.S. trade deficit narrowed to $677.1 billion from $700.3 billion in the previous year.

Stocks gained, recouping some of their losses from yesterday, when concern about a lack of detail in the Obama administration’s financial-rescue plan spurred the biggest sell- off in three weeks. The Standard & Poor’s 500 Stock index rose 0.8 percent to 833.74 at 4:14 p.m. in New York.

Imports in December dropped 5.5 percent to $173.7 billion, the lowest since September 2005, from $183.9 billion the prior month as U.S. consumers bought fewer foreign-made cars and trucks and oil prices fell. Purchases of clothing, furniture and household appliances from outside the U.S. also declined, further reflecting shrinking demand for foreign-made goods.

Canadian Oil

As an indication of the collapse in U.S. demand, Canada, the No. 1 exporter of oil and natural gas to the U.S., in December posted its first trade deficit in more than three decades, the country’s statistics agency said today.

The U.S. trade report showed the average price of imported oil fell to $49.93 a barrel, the lowest since December 2005, from $66.72 in November.

Exports in December fell 6 percent to $133.8 billion. Sales abroad of U.S.-made automobiles, parts and engines fell to the lowest level since November 2004.

After eliminating the influence of prices, which yields the numbers used to calculate gross domestic product, the trade deficit widened to $43.3 billion from $40.1 billion.

Economists at Morgan Stanley and IHS Global Insight cut their fourth-quarter GDP estimates after today’s report, each saying the economy shrank at a more than 5 percent annual rate last quarter. Commerce’s initial estimate on Jan. 30 showed the economy contracted 3.8 percent, the most since 1982.

Deepening Recession

Gross domestic product is forecast to contract again this quarter as consumer spending, about 70 percent of the economy, is likely to keep declining. Trade, which has added to the U.S. economy since the first three months of 2007, will be less of a help in coming quarters, economists predict.

The U.S. trade gap with China and Canada narrowed, while it widened with the European Union.

Manufacturers are hurting. PPG Industries Inc., the world’s second-biggest paint maker, said last month that it may cut as many as 4,500 jobs because of weak global demand from automakers and homebuilders.

“The regions outside of North America, which had been really helping PPG in the first three quarters of last year, have sort of caught the disease that started here in the U.S. with the credit crisis,” Chief Executive Officer Charles E. Bunch said Jan. 27 in an interview.

Protectionism Pushback

Steel companies including U.S. Steel Corp. and Nucor Corp. are pushing for a mandate that projects included in Obama’s stimulus plan use American-made iron, steel and other manufactured goods to build roads, bridges and tunnels.

Opponents of the provision, such as Caterpillar Inc., Microsoft Corp. and the U.S. Chamber of Commerce, have said it might spur protectionist measures around the world.

Congressional leaders are crafting an approach that would give preference to U.S. products only as long as such a move doesn’t violate trade rules.

The White House has demanded that the provisions satisfy U.S. obligations under the World Trade Organization.

Russia raised import duties on cars and trucks this year to protect its slumping producers. French automakers PSA Peugeot Citroen and Renault SA will get government loans after promising to keep jobs and production in the country.

The global economy will expand 0.5 percent in 2009, the weakest pace since World War II, according to a forecast from the International Monetary Fund.

To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

Last Updated: February 11, 2009 16:41 EST