INSTANT VIEW 3-U.S. March PPI, Feb trade deficit

NEW YORK (Reuters) - Rising energy costs pushed producer prices up by a greater-than-expected 1.0 percent in March, but producer prices excluding food and energy were flat, a Labor Department report showed on Friday.

Analysts polled by Reuters were expecting a 0.7 percent gain in overall producer prices and a 0.2 percent rise in core producer prices.

KEY POINTS: - Core producer prices rose 1.7 percent from the same period 12 months ago, down from a 1.8 percent year-over-year rise in February. - The U.S. trade deficit narrowed unexpectedly in February to $58.4 billion, as crude oil imports fell sharply to the smallest in four years and average imported oil prices were the lowest since December 2005, a government report on Friday showed. The midpoint estimate of Wall Street analysts surveyed before the report was for the February trade gap to widen slightly to $60.0 billion.

COMMENTARY:

ROBERT LUTTS, CHIEF INVESTMENT OFFICER, CABOT MONEY MANAGEMENT,

SALEM, MASSACHUSETTS:

"The first look is very significant data on the core inflation continues to be favorable. We continue to see higher oil hit that segment but most other components are in line and trending lower than expected and that should be viewed favorably by the Treasury market. Lower inflation is always favorable for both financial classes (stocks and bonds) and gives people a little bit of comfort going forward."

As for the Fed, "there will be less talk of further tightening and more talk of stable balances and more favorable inflation trends."

ADAM BROWN, CO-HEAD U.S. TREASURY TRADING, BARCLAYS CAPITAL,

NEW YORK:

"The market is rallying a little bit. The main reason is the market is looking more at the unexpected weakness in the core as opposed to the strength in the headline. Overall I don't think this number is going to push the market much further either way just because they are opposites. If they were both weak or both strong I think probably it would be a bigger move. It's slightly bullish but not tremendously bullish."

ALBERT SAFDIE, GLOBAL FIXED-INCOME TRADER, HAPOALIM SECURITIES,

NEW YORK:

"Treasury prices are firming up. Although the producer price index rose a little bit, once you take energy prices out we are basically tame on the inflation side. We have slow growth with moderate inflation."

MICHELLE MEYER, ECONOMIST, LEHMAN BROTHERS, NEW YORK:

"When you look at it in real terms, the trade gap actually widened. On net, this should have no effect on Q1 GDP."

STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO., GREENWICH,

CONNECTICUT:

"Overall inflation is what the Fed seems to be worried about. This PPI report, looking at the core data, is refreshing and a bit hopeful. But again, a closer look will be at the CPI report."

CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK:

"The core was a little better than expected, and I think that has got to be where the focus is because that is what the Fed is looking at. Energy prices were the big problem in the headline -- there what we are seeing is an earlier than normal rise in gasoline prices, and it remains to be seen why that is.

"The Fed can breath a little easier. It is not just that price relief is welcome this month, it was absolutely necessary."

DUSTIN REID, CURRENCY STRATEGIST, ABN AMRO, CHICAGO:

"The dollar has been soft all week so until we get through the G7, people are not going to want to do much and may even add some small dollar shorts.

"The risk with the G7 is that someone says something that the market is not expecting, whether it's about dollar/yen, euro/yen which is near record highs, or euro/dollar which is 1 percent from a record high."

MARKET REACTION: - U.S. Treasury debt prices rise after core PPI unchanged in March. - U.S. rate futures rise on steady reading on March core PPI. - Dollar steady after Feb US trade gap narrower than expected, tame March core PPI. The euro EUR= initially unchanged against the dollar, trading at $1.3540. The dollar was largely steady against the yen, trading at about 118.50 yen JPY=. - U.S. stock futures jump as core PPI unchanged.