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Increased exports to China narrow US trade deficit

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The United States trade deficit narrowed in October to its lowest level since early this year, the government reported Friday, with exports to China hitting a high.

The encouraging trade report and signs that a tax cut package would pass the Senate sent stocks to their highest levels in two years Friday. Bond prices fell for another day as investors expected the tax deal to lead to economic growth and higher budget deficits.

Tom di Galoma, head of fixed income trading at Guggenheim Partners in New York, said traders see the deal’s passage as nearly inevitable.

“To stimulate the economy, it really has to be done,” he said. “The last thing you want to do is raise taxes in the middle of a recession.”

The Standard & Poor’s 500 index rose 7.40 to 1,240.40. It was the third straight day that the S&P index closed at a new high for the year. The index has gained 11.2 percent this year and is now trading at the same price it did the week before Lehman Brothers filed for bankruptcy in September 2008.

The Dow Jones industrial average rose 40.26 to 11,410.32. General Electric Co. led the 30 stocks that make up the index with a 3.4percent jump. GE said it planned to raise its dividend by 17 percent.

The Nasdaq composite index rose 20.87 to 2,637.54.

Benchmark oil lost 58 cents to settle at $87.79 a barrel on the New York Mercantile Exchange. But crude has climbed about 5 percent in the past 10 days, and on Tuesday it topped $90 for the first time in over two years.

The Commerce Department said the trade gap was $38.7 billion in October, the smallest since January, when it was $34.8 billion.

Imports declined 0.5 percent, to $197.4 billion, while exports rose 3.2 percent, to $158.7 billion, the highest level in more than a year.

Economists had forecast a deficit of $43.8 billion in October. The latest trade figures, including the smaller-than-expected deficit, could contribute to revisions to estimates for fourth-quarter economic growth in the U.S.

“Today’s report on the narrowing of the trade deficit is good news all the way around,” said Steven Blitz, a senior economist for ITG Investment Research.

The September trade deficit was revised to $44.6  billion, from $44 billion.

The increase in U.S. exports in October reflected a rise in sales of a variety of goods abroad, mostly industrial supplies and materials; food, feed and beverages; and automotive vehicles, parts and engines, the department reported on Friday.

Exports swelled to record highs with two important U.S. trading partners. U.S. exports to Mexico, including natural gas, fuel oil and soybeans, hit a high in October of $15.4 billion, but the deficit with Mexico was virtually unchanged at $5.8 billion. And exports to China, primarily soybeans, reached $9.3 billion in October, the highest on record and shrinking the deficit with that Asian country to $25.5 billion in October, from $27.8 billion in September.

Separately, the Treasury Department said the federal government’s budget shortfall hit $150.4 billion in November. Treasury prices dropped after the report was released, pushing their yields higher.
Source: Houston Chronicle

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