* June trade surplus second-biggest ever
* Exports inch up month-on-month, y/y fall slows
* Import drop points to weak domestic demand
By Jan Lopatka
PRAGUE, Aug 6 (Reuters) - Czech foreign trade showed its second biggest ever surplus in June as imports extended a string of declines and exports inched up, signalling weak domestic spending but possible recovery in foreign demand.
The monthly surplus reached 20.43 billion crowns ($1.13 billion), the best figure since the March record of 22.5 billion, beating market forecasts of 14 billion. Trade is a key indicator for the small and open economy, which slid into a recession as demand in Germany and other euro zone countries dried up.
Exports inched up by 1.6 percent month-on-month in June while imports fell 1.5 percent, according to figures released on Thursday by the Czech Statistical Bureau..
Year-on-year, exports still dropped 15.1 percent, a slowdown from 21.2 percent in May, and imports dropped 19.3 percent.
"Foreign demand is on a slow rise from the bottom, but domestic demand has not begun to recover yet," said Pavel Sobisek, chief economist at UniCredit in Prague.
"The second-quarter gross domestic product will show a drop of about four percent, and the decline will be driven more by falling household consumption and investments than net exports, unlike in the previous quarters."
The economy dropped by 3.4 percent both in quarterly and year-on-year terms in the first three months of this year, and the finance ministry expects a full-year decline of 4.3 percent.
LESS NEED FOR RATE CUTS
The signs of an improvement in foreign demand may be a signal for the central bank to refrain from a further reduction in interest rates at a meeting later on Thursday.
"It is another 'green shoot' for the Czech economy, so if we can believe the situation is improving then the reasons for monetary easing are declining."
A small majority of analysts in a Reuters poll predicted the bank would keep the main repo rate flat at an historic low of 1.5 percent at their meeting on Thursday, while others forecast a 25 basis point reduction.
On the import side, lower oil prices helped the overall balance.
The crown currency briefly firmed after the figures to 25.915 to the euro but soon dipped back to the previous level around 25.96.
Hungary also posted a trade surplus for June on Thursday, of 549.1 million euros, after a surplus of 478.9 million in May. The result was well above analysts' expectations for a surplus of 448.5 million euros. (Editing by Stephen Nisbet)