* Trade deficit more than three times forecast
* Exports drop 2.5 pct; imports fall 1.2 pct
* C$ nears 3-wk low on unexpectedly large deficit (Adds details)
By Ka Yan Ng
OTTAWA, Aug 11 (Reuters) - Canada's trade deficit ballooned to more than three times expectations in June, hit by lower exports of industrial goods and materials, in the latest sign the economic recovery is slowing.
The shortfall totaled C$1.13 billion ($1.06 billion) as the trade deficit surged from a revised C$695 million in May. Both imports and exports fell, Statistics Canada data showed on Wednesday.
May's deficit was originally reported at a C$503 million.
The Canadian dollar
The deficit easily surpassed the most bearish estimate of for a shortfall of C$1.05 billion among 20 analysts surveyed by Reuters [CAD/], and mirrored a surprising jump in the U.S. trade deficit for June and a weaker economic outlook for Canada's biggest trading partner.
"Trade data can be choppy, but when two-way trade stalls in two of the last three months, that can't be bullish for global growth. Weak volumes and soft prices conspired to take Canada's trade balance to its worst tally in 10 months," said Krishen Rangasamy, economist at CIBC World Markets.
As one of the components to shaping second-quarter growth numbers, several analysts said the trade report will weigh on those figures and follows recent data that has shown the pace of economic recovery has decidedly ebbed from a dazzling first-quarter GDP growth of 6.1 percent.
The Bank of Canada clipped its second-quarter growth forecast to 3 percent last month, and said net exports would crimp growth by 1.6 percent this year.
Canada's trade deficit is just one of several recent indicators that reinforced concerns about a lackluster global economic recovery, pressuring riskier assets such as equities and commodities. The data added to soft manufacturing numbers from China and a gloomier growth outlook from the U.S. Federal Reserve. [MKTS/GLOB]
While economists say the Bank of Canada is likely to remain on track to raise interest rates in September for a third time this year, markets were less convinced of a quarter-point increase to 1 percent.
Market pricing for the policy rate, as measured by yields
on overnight index swaps, tumbled to around 50 percent from 58
percent before the day's data.
The data prompted at least one Canadian bank to formally revise its second-quarter growth outlook. Others highlighted the risk of weaker than expected economic expansion.
"For all of Q2, the trade deficit came in at a C$6.4 billion annual rate, compared with a surplus of C$4.7 billion in Q1. That swing will translate into a big drag from net exports in the broader GDP results," said Doug Porter, deputy chief economist at BMO Capital Markets.
"As a result, we have trimmed our GDP estimate for Q2 to 2.3 percent from 2.7 percent."
EXPORTS, IMPORTS BOTH FALL
Exports missed estimates, falling 2.5 percent in June to C$33.5 billion from C$34.4 billion in May, as shipments of industrial goods and materials, such as precious metals, fell for a third straight month.
Automotive products, which accounted for over half the growth of exports in the prior month, gave back some of those gains. Exports of passenger cars fell 7.1 percent in June.
Imports at C$34.6 billion were exactly on expectations, reflecting a drop in energy shipments. Excluding energy products, imports grew 0.9 percent in June from May.
Analysts had, on average, forecast imports of C$34.6 billion and exports at C$34.3 billion.
Canada's trade surplus with the United States narrowed to C$3.03 billion from C$3.45 billion.
Separately, the U.S. Commerce Department reported the trade deficit there widened a surprising 18.8 percent in June and suggested U.S. second-quarter economic growth was much weaker than previously thought. [ID:nN11206050]
Meanwhile, Canada's deficit with countries other than the United States grew to C$4.16 billion from C$4.14 billion, the largest gap since December 2009.
($1=$1.04 Canadian) (With additional reporting by Howaida Sorour; Editing by Jeffrey Hodgson and editing by Rob Wilson)