* Analysts trim Q2 GDP estimates on widening trade gap
* Rise in imports from China renews currency concerns
* Commerce Secretary Locke hails rise in US exports (Recasts; adds analyst forecasts, quotes)
By Doug Palmer
WASHINGTON, July 13 (Reuters) - The U.S. trade deficit widened unexpectedly in May, prompting analysts to ratchet back estimates for second quarter economic growth despite signs of increased demand both at home and abroad.
The trade gap grew to $42.3 billion, the largest since November 2008, as imports from China soared 12.1 percent, helping overpower the best month for U.S. exports since September 2008, the Commerce Department said on Tuesday.
A 2.9 percent rise in overall imports suggested U.S. demand was holding up better than some had feared. But with more of that demand being sated by overseas products, the widening trade gap was seen weighing on U.S. gross domestic product.
RBS lowered its estimate of second quarter U.S. economic growth to 2.8 percent, while JP Morgan cut its to 2.5 percent. Both had previously forecast it at 3.2 percent.
Michelle Girard, a senior economist with RBS in Stamford, Connecticut, said much of the merchandise imported in May was ordered earlier in the spring, when optimism about the economy was running high.
"With the pace of global recovery downshifting a bit this summer, the strength in exports and imports could cool somewhat heading into the fall," Girard said.
Data ranging from retail sales to consumer sentiment and employment have suggested the U.S. economy's recovery from the deepest recession since the 1930s has lost a step in recent months.
A second report on Tuesday showed U.S. small businesses grew more pessimistic about their economic outlook in June in the face of weak sales and political uncertainty. [ID:nN12209747]
However, financial markets largely ignored the data and U.S. stocks rallied after Alcoa Inc (AA.N) reported stronger-than-expected profit and raised its estimate for global aluminum demand.
CHINA IMPORT SURGE
The big jump in imports from China is consistent with that country's own trade data, which showed exports rising sharply in May and June from year-ago levels.
That has given China's critics in the U.S. Congress new ammunition to argue Beijing is not allowing its yuan currency to increase in value fast enough. The yuan has risen 0.80 percent since Beijing loosened it from a peg to the dollar on June 19.
A number of U.S. lawmakers say it is undervalued by 25 percent to 40 percent, giving Chinese exporters an unfair advantage. They are vowing to move forward with legislation, after the Obama administration declined in a semi-annual report last week to formally name China a currency manipulator.
However, the big jump in imports from China could be "a temporary surge," as Chinese exporters rushed to ship goods before the government cuts its export value-added tax rebate on Thursday, Michael Feroli, an economist at JPMorgan said.
"To the extent Chinese exports have been front-loaded, this could have modestly favorable 'payback' implications" for third quarter U.S. economic growth, he said.
U.S. exports rose 2.4 percent in May. The increase reflected big gains for industrial supplies and materials and capital goods and smaller rises for autos and consumer goods.
"Today's numbers are another promising sign that the worldwide economic rebound and a renewed focus on increasing exports continues to boost the number of U.S. goods and services sold overseas," Commerce Secretary Gary Locke said.
Locke also cheered the uptick in imports as a sign of strengthening consumer demand, while calling it a reminder "that more must be done to close the trade gap, including fighting for a level playing field for U.S. businesses."
A slight drop in the average price for imported oil to $76.93 per barrel helped keep the monthly trade gap from widening further. U.S. imports from Saudi Arabia and other members of the Organization of Petroleum Exporting Countries were down about 10 percent in May. (Editing by Andrew Hay)