May 12 (Bloomberg) -- The U.S. trade deficit widened for the first time in eight months as exports slumped to a two-year low, overwhelming a reduction in American demand for goods made abroad.

Analysts detected signs in the report that a record contraction in global trade flows may be easing, highlighting the slowest pace of decline in U.S. imports since they started dropping in August. The figures also showed that American shipments to China in the last two months of the first quarter climbed the most since 2006.

“It’s one more indicator that things are getting worse at a lot slower pace than before,” said John Ryding, chief economist at RDQ Economics LLC in New York.

The U.S. trade gap grew 5.5 percent to a smaller-than- forecast $27.6 billion, the Commerce Department report showed today in Washington. The shortfall in February was the smallest in nine years.

Caterpillar Inc. is among companies seeing an improvement in sales to China that signals government stimulus programs here and abroad may be succeeding in stemming the slump in global demand. Still, rising fuel costs and gains in imports indicate most of the narrowing in the U.S. trade deficit -- something that boosts the nation’s gross domestic product, is over.

The dollar dropped against the euro and higher-yielding currencies such as the Australian and New Zealand dollars, as evidence that the worst of the global economic slump may be over pared demand for safety. The U.S. currency fell to $1.3652 per euro at 5:03 p.m. in New York from $1.3582 late yesterday.

Boeing, Intel

The trade gap was projected to widen to $29 billion, according to the median forecast in a Bloomberg News survey of 65 economists. Deficit projections ranged from $23 billion to $32.5 billion.

Exports declined 2.4 percent to $123.6 billion, the fewest since August 2006. The drop was led by decreasing foreign purchases of automobiles and capital goods, such as commercial aircraft and telecommunications equipment.

Boeing Co. last week sustained 25 cancellations of its delayed 787 Dreamliner worth $4.4 billion. Cancellations in the first four months of the year now total 59, versus 58 purchases, according to data published May 7 on the Chicago-based company’s Web site.

Intel Corp., the world’s biggest chipmaker, on April 14 said first-quarter profit fell 55 percent because of slowing computer demand and signaled sales won’t recover in the current period.

Sales to China

“The recovery seems to be under way in the U.S. and, other than in China, there seems to be quite a bit of weakness overseas, which suggests that imports will recover before exports,” said Chris Low, chief economist at FTN Financial in New York.

Still, there are signs the worst may be over. Caterpillar, the world’s largest maker of bulldozers and excavators, has seen its sales to China improve because of that nation’s $586 billion stimulus package, said Chief Executive Officer James Owens.

“March and April were pretty strong months for sales in China,” Owens said on an April 21 conference call with analysts. China’s spending on public works projects is working more quickly than that in the U.S. “When they say ‘shovel ready,’ they mean nine weeks, not nine months,” he said.

Gap with China

The trade gap with China increased to $15.6 billion from $14.2 billion in the prior month. A gain in imports from China overshadowed an increase in Chinese demand for American-made goods that pushed U.S. exports to the highest level since October.

China today reported that business investment surged 31 percent in the first four months of the year compared with 2008. The gain helped offset a 23 percent drop in April exports from the same month last year.

A report from the Institute for Supply Management this month showed factory exports fell in April at a slower pace. The group’s index of sales overseas climbed to the highest level since September, a month before the slump began.

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit grew to $35.9 billion from $35.7 billion.

The Commerce Department estimated a much larger increase when calculating first-quarter GDP, indicating that the slump in growth may be revised down. A preliminary report issued last month showed the economy shrank at a 6.1 percent annual pace.

Imports Drop

Imports decreased 1 percent to $151.2 billion, the fewest since September 2004. Demand fell for industrial supplies such as natural gas and steel and for capital goods such as engines and machinery, reflecting the slump in U.S. business investment.

The overall drop in overseas purchases overshadowed the first increase in automobile imports since June and the first gain in demand for foreign-made consumer goods since October that reflects a stabilizing in retail sales.

The imported-petroleum bill also grew as prices climbed. The average cost of a barrel of crude oil rose to $41.36 in March from $39.22 a month earlier. The price probably kept climbing last month, according to trading on the New York Mercantile Exchange, a sign imports will continue to rise.

An improvement in trade may come too late to prop up global growth. The world economy may shrink 1.3 percent this year, the first contraction in the postwar era, according to a forecast by the International Monetary Fund.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: May 12, 2009 17:29 EDT