U.S. current account gap smallest since 2003

WASHINGTON (Reuters) - The U.S. current account for the fourth quarter narrowed sharply and by more than expected to $132.8 billion, the smallest since the fourth quarter of 2003, as U.S. imports plunged more than exports, a Commerce Department report showed on Wednesday.

The deficit shrank from an upwardly revised estimate of $181.3 billion for the third quarter. Wall Street analysts had expected the fourth quarter gap at $137 billion.

The fourth quarter deficit equaled 3.7 percent of gross domestic product, down from 5.0 percent in third quarter and the lowest since 3.4 percent in fourth quarter 2001.

The current account deficit equaled 4.7 percent of GDP for all of 2008, down from 5.3 percent in 2007.

The current account is the broadest measure of total U.S. trade with the rest of the world, covering goods, services and income transfers.

The sharp narrowing in the fourth quarter mostly came in U.S. goods trade, the Commerce Department said.

Both U.S. exports and imports fell in the fourth quarter as the worsening global financial crisis took a toll on world trade. Exports fell to $290.5 billion from $346.3 billion, while imports declined to $464.6 billion from $562.5 billion.

All major categories of exports and imports declined substantially, with a sharp drop in the price of oil playing a big factor in the decline on both sides.

An increase in the U.S. surplus in investment income and a decrease in overseas remittances also contributed to the narrower current account gap, the department said.

The U.S. dollar appreciated 11 percent in the fourth quarter on a trade-weighted quarterly average basis against a group of seven major currencies.

(Reporting by Doug Palmer, Editing by Kenneth Barry)