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WASHINGTON, Feb 8 AFP

February 09 2013, 05:19AM

The US trade deficit shrank sharply in December, official data shows, raising speculation that fourth-quarter economic growth was better than estimated.

The Commerce Department reported on Friday that the trade gap narrowed 21 per cent to $US38.5 billion ($A37.64 billion), its lowest level since January 2010, from a revised $US48.6 billion in November.

The $US10 billion plunge - the biggest month-on-month decline in nearly four years - was largely due to a drop in oil imports, helped by falling oil prices.

Imports fell 2.7 per cent to $US224.9 billion. Petroleum imports plunged 13.0 per cent to $US22.1 billion.

In December, exports rose 2.1 per cent to $US186.4 billion, boosted by a 9.5 per cent jump in industrial goods exports.

US oil exports contributed significantly to the rise in exports, surging 8.7 per cent from November as the country gears up domestic oil production.

The US is forecast to overtake Saudi Arabia as the world's largest oil supplier by 2020.

"Imports ex-petroleum are still up 2.4 per cent year-over-year, suggesting a big part of the weakness in imports is due to the substitution of domestic petroleum production for foreign oil production," said Mei Li of FTN Financial.

The December trade gap reading snapped three months of widening deficits and came in well below the average analyst estimate of $US45.4 billion.

The closely watched trade gap with China, the country's second-largest trade partner, shrank 15.5 per cent in December to $24.4 billion as imports of Chinese goods fell.

But for all of 2012 the China trade gap topped $300 billion for the first time, soaring to a record $US315.1 billion.

The US trade deficit also narrowed significantly with the European Union in December, falling 28.4 per cent to $8.7 billion.

For the full year, the US trade deficit fell 3.5 per cent to $540.4 billion, with exports up 4.4 per cent and imports rising 2.7 per cent.

By Veronica Smith