INSTANT VIEW: Trade deficit shrinks most in 12 years

NEW YORK (Reuters) - The U.S. trade deficit shrank 28.7 percent in November, the biggest contraction in 12 years, as weak consumer demand and plummeting oil prices caused a record drop in imports, a U.S. Commerce Department report showed on Tuesday.

KEY POINTS: * The $40.4 billion trade gap in November was the lowest in five years and much lower than expected. Wall Street analyst had expected the trade gap to narrow to around $51.3 billion, from a downwardly revised $56.7 billion in October. * U.S. imports in November fell a record 12 percent to $183.2 billion, as the global financial crisis scared businesses and consumers into cutting their spending. * Imports of both capital and consumers goods were the lowest since mid-2006, while auto and auto part imports fell to levels not seen since August 2003. Imports from China fell by a record $5.7 billion to $28.3 billion.

COMMENTS:

NIGEL GAULT, CHIEF U.S. ECONOMIST, GLOBAL INSIGHT, LEXINGTON,

MASSACHUSETTS:

"The biggest contributor was the fact that petroleum imports plunged, and that's largely due to lower prices. I suppose we can say that's good news in that it reflects that the terms of trade have been improved because the price of oil is must lower. So that's good news. The rest of the story was we cut our imports faster than the rest of the world cut our exports. You can't really describe it as particularly good news because it's telling you global trade is contracting very sharply. We passed on a bit more of our demand decline to the rest of the world than they passed back to us.

"Is it good news for the markets? Arithmetically maybe it may cause people to slightly moderate their expectations of how much GDP declined in the fourth quarter. But, can you really view it as good news for the broader outlook beyond whatever the fourth-quarter GDP number is if this report is telling us world trade is falling extremely sharply. You can't view that as good news.

"If you're a U.S. exporter, seeing your demand evaporate like that, it's no real consolation for you that because consumer demand is falling, the U.S. has been importing less consumer goods. Or that because the economy is contracting so fast U.S. businesses are buying less capital goods from the rest of the world. You are still seeing your export market disappear."

IAN LYNGEN, INTEREST RATE STRATEGIST, RBS GREENWICH CAPITAL,

GREENWICH, CONNECTICUT:

"A much narrower trade deficit than expected, with the total -$40.4 billion versus the -$51 billion consensus. Lower oil prices were clearly the driver, but even ex-petro the deficit narrowed $4 billion. Overall, the report is supportive of more upward revisions to fourth quarter gross domestic product. RBS Greenwich economics team was looking for an upward revision to -3.5 percent prior to the release and now sees the potential to be inside of -3 percent."

KATHY LIEN, DIRECTOR OF CURRENCY RESEARCH, GFT, NEW YORK:

"The U.S. trade deficit narrowed materially in the month of November to the smallest since June 2003. Although the narrower trade deficit is normally something to cheer about, the details of the report indicate that the only reasons why trade improved was because of the fall in oil prices and slower domestic demand. The big story is in imports, which plunged 12 percent in November. Unfortunately the strength of the dollar did not drive stronger U.S. demand for foreign goods but it did cut exports by 5.8 percent. The U.S. dollar strengthened following the report but the gains may be limited because the report reflects the weakness rather than strength of the US economy."

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

"It was much better than expected, it looks to me like the smallest trade deficit since late 2003. It is lower oil prices finally showing up in the numbers, because they come with such a lag. The beauty part is that the trade deficit will shrink as much in the next couple of months because oil prices fell at a pretty constant rate. Obviously it is one of the few things that is working right for GDP this quarter, but it will be more than offset by other things of course."

PETER KENNY, MANAGING DIRECTOR, KNIGHT EQUITY MARKETS, JERSEY

CITY, NEW JERSEY:

"It's interesting that the numbers still show a relative increase of imports over exports. Exports increased by a slower pace, so the balance of trade is trending in our favor. I think that has something to do with oil shipments. These are good numbers in terms of the trend of trade, but they need to improve substantially."

MARTY MITCHELL, HEAD OF GOVERNMENT BOND TRADING, STIFEL

NICOLAUS & CO., BALTIMORE, MARYLAND:

"In Treasuries we haven't seen much reaction through Bernanke's comments or the trade deficit number so far. The market will trade off of MBS purchases and any more news from Citigroup with regard to their expected losses and on any concerns about equities particularly in the financial sector."

MARKET REACTION: STOCKS: U.S. equity index futures hold losses. BONDS: U.S. Treasury debt prices steady at lower levels. DOLLAR: U.S. dollar holds adds gains versus euro.