WRAPUP 1-China trade surplus falls, wholesale inflation up

By Zhou Xin and Jason Subler

BEIJING, March 10 (Reuters) - China reported a big drop in its trade surplus on Monday as imports surged and exports sagged, but economists were wary of reading too much into the data because of distortions from the timing of the Lunar New Year.

Of more immediate significance, they said, was that factory-gate prices rose 6.6 percent in the 12 months to February, the fastest rate in more than three years and pointing to a leap in consumer prices when figures are issued on Tuesday.

Premier Wen Jiabao, in his annual report to parliament last week, declared the fight against inflation to be his top economic priority despite clouds over the outlook for global growth.

The trade surplus for February shrank to just $8.56 billion from $19.5 billion in January and $23.8 billion a year earlier, the customs administration said.

Economists, who had expected a surplus of $21.9 billion, explained away the forecasting error by pointing to the vagaries of the calendar: factories shut down at different times each year depending on the timing of Chinese New Year.

Fierce winter weather also disrupted production and shipment schedules this year, further clouding the picture.

"Taking January and February together certainly makes much more sense than taking the February figures on their own. So that would imply export growth has slowed a little bit and import growth has picked up a little bit, which is the trend we expect for the year as a whole," said Paul Cavey, an economist at Macquarie Securities in Hong Kong.

What that means is that China's politically contentious surplus is finally growing more slowly and may even have peaked.