UPDATE 1-Australia racks up record exports to China in May

(Adds analyst reaction)

* Trade deficit smaller than expected at A$285 mln in May

* Record month for merchandise exports to China

* Resilient domestic economy lessens urgency for rate cuts

By Wayne Cole

SYDNEY, July 5 (Reuters) - Australia reported a smaller than expected trade deficit for May as the resource-rich country enjoyed a record month of exports to China, another sign of its resilience to global headwinds.

Government figures out Thursday showed a deficit on goods and services of A$285 million ($292 million) in May, under forecasts of A$500 million. April's shortfall was also revised down to just A$26 million, from an initial A$203 million.

Australia enjoyed a 14 percent jump in merchandise exports to China, its single biggest market, which at an unadjusted A$7.3 billion handily beat the previous record set in October last year, despite a slowdown in the Asian giant.

For the whole 11 months to May, exports to China were up 19 percent to A$69.6 billion, earning Australia a whopping trade surplus of almost A$30 billion.

"There had been worries that a slowdown in China had hit exports in the first quarter, but now there's clear signs that exports of bulk commodities are picking up again," said Brian Redican, a senior economist at Macquarie.

"That suggests it was problems on the supply side and not with demand," he added. "So these are another set of supportive numbers. There's some light amid the clouds."

The trade figures cap a week of upbeat Australian data with retail sales outpacing expectations in May, while approvals to build new homes surged by a record.

All of which has seen the market scale back expectations for how fast and far interest rates might fall. The Reserve Bank of Australia (RBA) held rates at 3.5 percent at its policy meeting this week and sounded in no hurry to move gain, noting that past cuts had already delivered a "material" easing.

Interbank futures <0#YIB:> now imply less than a 50 percent chance of a further cut in August, when it had been fully priced just a week ago.

Overnight indexed swaps, a measure of market expectations for the cash rate, now show rates at 3 percent in 12 months, up from 2.75 percent.

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Thursday's figures showed Australian exports rose by 2.2 percent seasonally adjusted to A$26.8 billion in May, the highest reading in five months.

On the other side of the trade accounts, imports increased by 3.2 percent to A$27 billion, mainly due to fuels. Imports of capital goods increased by 3 percent with industrial transport machinery in demand for mining projects.

Exports of metals and iron ore picked up further, with shipments of iron ore fines to China up 17 percent. Iron ore and coal exports had disappointed over the first quarter due to bad weather and supply bottlenecks.

Miners are still betting heavily that demand from urbanisation in China and India will grow for decades to come, and are pouring massive amounts of money into mines and liquefied natural gas.

Figures out this week showed no less than A$137 billion in engineering work currently in the pipeline, or almost 10 percent of Australia's A$1.4 trillion of gross domestic product (GDP).

On Wednesday, ConocoPhillips and Origin Energy gave the go ahead for a second train at the A$23 billion Australia Pacific LNG project, one of three worth over $50 billion currently underway in Queensland state.

Eventually all this spending should greatly lift export volumes, with LNG output alone expected to triple. (Reporting by Wayne Cole; Editing by Michael Perry)