The US trade deficit soared to a new record in June following a surprise surge in imports from Europe and Japan.
It marks the fifth time in six months the politically sensitive economic indicator has reached a new high and triggered a fall in the dollar, which briefly dipped below 111 against the yen.
According to the US Commerce Department, the monthly deficit in trade in goods and services widened to $24.6 billion (€23.1 billion), a brisk 16.3 per cent up on the $21.2 billion recorded in May.
The figure significantly exceeded market expectations of a slight fall and dashed hopes that economic recovery in Asia and elsewhere would give a strong boost to US companies trying to sell their products abroad.
The total deficit for the first half of 1999 was $118.14 billion compared with $75.3 billion for the same period in 1998.
Analysts lowered estimates for second-quarter growth but said the deficit continued to reflect US economic strength at a time of global weakness.
They warned the deficit was unlikely to deter the Federal Reserve from raising interest rates next week to offset robust consumer spending.
Mr Clyde Prestowitz, president of the Economic Strategy Institute, said: "Ours has been the sole market able to absorb increased worldwide production and the result has been a cyclical swelling in the trade deficit."
The dollar, which this week has been sliding against the yen, touched a new seven-month low of Y110.72, then recovered to close the London session at Y111.5, down Y0.6 on Wednesday's London close. It fell more than a cent against the euro on the news, closing in Dublin at $1.0629.
Some analysts said the strength of the reaction against the euro was slightly surprising as trade data usually affected the dollar against the yen more than against the euro. "The euro was overdue a correction higher against the dollar," said Mr Marc Chandler, chief currency strategist at Mellon Bank in New York.
The euro was boosted also by the west German July business climate index which rose to 93.6, above expectations of 93.5 and up from 92.9 in June. The rise was seen as confirming a view that growth in Germany's economy, the largest in the region, would accelerate in the second half.
The ballooning US trade deficit has become a subject of intense political debate in Congress following complaints from US industries, such as steel, that foreign producers are dumping products in the US market to offset weak domestic sales.
Total June exports rose to $78.4 billion, only slightly up from the $78 billion recorded in May and little changed from a year ago.
Although agricultural sales rose to $3.87 billion from $3.74 billion, total exports for the year to date reached only $22.15 billion compared with $23.8 billion in the first half of 1998, reflecting depressed global commodity prices and a US drought.
However, imports rose to $103 billion from $99.1 billion, fuelled by a rise in US purchases of foreign motor vehicles and increased sales of computer accessories, telecommunications equipment and electrical apparatus.
The US's bilateral deficit with western Europe rose to $4.94 billion, up sharply from $3.55 billion in May. The trade picture with Japan also deteriorated, with the US deficit rising to $6.28 billion from $5.26 billion in the previous month.
