May 9 (Bloomberg) -- The U.S. trade deficit narrowed more than forecast in March as imports dropped by the most in more than six years, reflecting the economic slowdown.

The gap shrank to $58.2 billion, the lowest this year, from a revised $61.7 billion in February, the Commerce Department said today in Washington. The shortfall with China was the smallest in two years.

Americans bought fewer automobiles and less crude oil, furniture and communications equipment from overseas as the economy grew at the slowest pace since 2001. Exports fell for the first time in more than a year, indicating economies abroad may also be starting to cool.

``The report did not reflect well on the health of the underlying economy given that it was largely based on imports falling more than exports,'' said Russell Price, senior economist at H&R Block Financial Advisors in Detroit, who forecast a gap of $59 billion. A weaker dollar should still cause the shortfall to diminish further by fueling demand for U.S. products, he said.

Economists forecast the trade gap would narrow to $61 billion from a previously reported $62.3 billion, according to the median of 71 economists surveyed by Bloomberg News. Forecasts ranged from $59 billion to $64.9 billion.

The dollar, which fell earlier today, remained lower after the figures. The U.S. currency was at $1.5447 per euro at 8:58 a.m. in New York, from $1.5393 late yesterday.

Inflation Adjusted

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit shrank to $47.2 billion, the lowest since November 2003, from $50.9 billion.

Imports decreased 2.9 percent, the most since December 2001, to $206.7 billion. Purchases of crude oil dropped, even as the average price for the month jumped to a record $89.85. The quantity of petroleum bought from overseas was the lowest since February 2007.

The trade gap may not be able to keep narrowing as oil prices continue to surge. Crude oil prices jumped to over $125 a barrel today, the highest ever.

Demand for goods from China suffered the biggest slump last month, helping to narrow the trade gap with that nation to $16.1 billion, the smallest in two years. At the same time, exports to China were the second-highest ever.

Near Record

Total exports fell 1.7 percent to $148.5 billion, driven by a decline in sales of commercial aircraft, autos and petroleum products. Even with the drop, the first since February 2007, exports were still the second-highest on record.

Demand for American goods from the European Union and from South and Central America set records in March.

As the U.S. economy teeters on the brink of a recession, trading partners such as China and Brazil continue to grow at faster rates.

Brazil's economy grew 6.2 percent in the fourth quarter from a year earlier and India grew 8.4 percent. China expanded 10.6 percent in the year ended in March.

By comparison, the U.S. economy grew 2.5 percent in the first quarter compared with the same time last year. The 0.6 percent growth rate over the last two quarters was the slowest since the 2001 recession.

Emerging Markets

Growth in emerging economies is boosting demand and prices for commodities such as oil. This in turn is leading to increased sales of American-made oil-drilling rigs and construction equipment as countries seek to tap natural resources and modernize highways and factories.

Brazil is preparing to tap the biggest crude-oil discovery in the Western Hemisphere in three decades, which lies just off its Atlantic coast. Petroleo Brasileiro SA, Brazil's state oil company, is in talks with Houston-based Transocean Inc. to extend offshore drilling contracts.

A lower dollar, by making American goods cheaper to overseas buyers, is also boosting exports. The dollar was down 9 percent against a trade-weighted basket of currencies from the U.S.'s biggest trading partners in the 12 months ended in March.

Cisco Systems Inc., the world's biggest maker of networking equipment, is among the companies benefiting from gains abroad. The San Jose, California-based company posted sales growth of 10 percent in the third quarter, even as U.S. sales grew only 5 percent.

``Asia-Pacific was very strong,'' Cisco's Chief Executive Officer John Chambers said in a Bloomberg Television interview May 7. ``China and India are on fire.''

Still, record exports alone won't prevent the economy from shrinking. Harvard University economist Martin Feldstein, a member of the committee that determines when contractions begin and end, said May 6 in an interview with Bloomberg Television that the U.S. economy is ``sliding into a recession.''

An improvement in the trade gap may also come from a continued slowdown in imports as consumers, facing falling home values and rising fuel bills, restrain spending. U.S. companies are also investing less in foreign-made equipment as concern grows that consumer demand will continue to weaken.

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Last Updated: May 9, 2008 08:59 EDT