March 14 (Bloomberg) -- Prices of U.S. imports rose less than forecast in February, held down by lower costs for metals and machinery that may help keep a lid on inflation.

The 0.2 percent increase followed a 0.9 percent drop in January, the Labor Department said today in Washington. Prices excluding petroleum fell 0.1 percent. Separate figures from the Commerce Department showed the current-account deficit shrank last quarter to $195.8 billion.

The cheapest imported business equipment in almost a year is among factors that may make it easier for the Federal Reserve to keep interest rates unchanged. Policy makers will see reports on wholesale and consumer prices in coming days as they prepare for next week's interest-rate meeting.

``This is definitely a Fed-positive report,'' said Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``It supports the case for the Fed to sit tight and continue to watch inflation pressures recede.''

U.S. Treasury securities held gains immediately following the reports before declining later in the day as crude oil and stock prices rebounded. The yield on the benchmark 10-year Treasury note, which moves inversely to price, rose to 4.53 percent at 5:05 p.m. in New York, from 4.49 late yesterday.

The Dow Jones Industrial Average rose 57.44 points, erasing a 136-point tumble earlier in the day, as energy shares climbed with the price of crude. Crude oil for April delivery increased to $58.24 in New York, up 0.5 percent, after the Energy Department reported an unexpected decline in U.S. refinery operating rates.

2006 Set Record

The shortfall in the current account, the broadest measure of trade because it includes transfer payments and investment income, followed a record $229.4 billion third-quarter gap.

The deficit may narrow this year for the first time since 2001 as U.S. exports rise and oil prices stabilize, economists said. Even with the improvement, the U.S. needs to attract about $2.1 billion a day to fund the gap, an imbalance that threatens to undermine the dollar and boost interest rates in the event foreign investors shy away from American assets.

Economists had forecast import prices to rise 0.8 percent, after a previously reported 1.2 percent decline the prior month, according to the median of 45 projections in a Bloomberg News survey. Estimates ranged from a drop of 0.2 percent to an increase of 1.5 percent.

The Fed, which kept interest rates unchanged at the last five meetings, predicts that a slowing economy and declining energy prices will limit inflation.

`Inflation Has Fallen'

``Inflation pressures appear to have abated somewhat following a run-up during the first half of 2006,'' Chairman Ben S. Bernanke told Congress last month. ``Overall inflation has fallen, in large part as a result of declines in the price of crude oil.''

He said core inflation, excluding prices of food and energy, has improved modestly in recent months, though it remains elevated.

``We really are seeing some tranquility here,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland, Ohio. ``The latest monthly results are welcome but are insufficient for the Fed to relax its stance.''

Policy makers including Fed Bank of Chicago President Michael Moskow have said concern about high inflation still outweighs the risk of slower economic growth.

Moskow last week said the Fed may yet have to increase interest rates to control inflation. Policy makers next meet to discuss the direction of interest rates on March 20 and 21.

Year-Over-Year gain

Compared with a year earlier, prices of imported goods rose 1.3 percent. Excluding petroleum, prices increased 2.1 percent in the past 12 months.

Prices of imported petroleum and petroleum products rose 2 percent in February from the prior month, after a 5.3 percent decrease in January. They fell 2.6 percent from the same time a year earlier.

Imported natural gas prices rose 2.5 percent in February, after a 13.2 percent decrease in January. Excluding natural gas and other fuels, import prices fell 0.2 percent.

Bernanke earlier this month challenged the assumption that closer ties among the world's major economies would hold down inflation. Economic expansions in China and India boost prices for fuel and other commodities and may counter any benefit from cheaper prices for other imported goods, Bernanke said in a March 2 speech. Globalization isn't fully understood by the Fed and may complicate policy making, he said.

Consumer Goods

Today's report showed prices for imported consumer goods excluding autos were unchanged, they time since April 2006 without an increase. The cost of capital goods, which is the equipment businesses use to make other products, fell 0.3 percent, the biggest drop since July 2005. The decline brought capital goods costs to their lowest level since May 2006.

Prices for industrial supplies excluding petroleum fell 0.1 percent. Prices of primary metals fell 1.4 percent after a 1 percent increase in January.

Prices of goods from China fell 0.2 percent in February. Prices of apparel, a major export of China, also declined 0.2 percent.

Prices of U.S. products exports to other countries rose 0.7 percent in February after rising 0.4 percent. Prices of farm exports rose 2.3 percent, while those of non-farm exports rose 0.6 percent.

Some foreign companies are facing pressure to keep prices lower.

Continental AG, the world's fourth-largest tire maker, has shifted production to low-cost countries such as Romania and Brazil because it needs ``to offer 3 percent to 5 percent lower prices to our customers annually,'' Chief Executive Officer Manfred Wennemer said in an interview on March 7.

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

Last Updated: March 14, 2007 17:07 EDT