By Jan Lopatka
PRAGUE, Dec 8 (Reuters) - Czech consumer prices slumped by half a percentage point in November, its biggest monthly fall in two years, while October foreign trade showed an unexpected deficit as exports, hit by the euro zone recession, sagged.
Both sets of data strengthened the case for further interest rate cuts as price pressures swiftly abated and the export-driven economy took a hit from the poorly performing European markets.
The monthly price drop came on the back of plunging fuel prices and cheaper food. It was in line with market expectations measured by a Reuters poll, and put year-on-year inflation at 4.4 percent, sharply down from 6.0 percent in October, the Czech Statistical Bureau data showed on Monday.
October foreign trade balance slid into a 3.95 billion crown ($196.4 million) deficit, the worst monthly figure since December 2005, with December being traditionally a poor month.
The market had expected a 7.7 billion crown surplus.
"All the data released this morning are sending a clear message: the Czech central bank has a lot of room for further interest rate cuts," said Radomir Jac, chief analyst at Generali PPF Asset management in Prague.
"Performance of machinery and transport equipment exports says that the Czech economy is heavily hit by recession in western Europe and economic slowdown in Emerging Markets economies, and the picture will remain bleak well into the first half of 2009."
The central bank slashed interest rates by hefty 75 basis points to 2.75 percent last month, and Czech rates now stand 25 basis points above the European Central Bank's. The Czech bank next meets to discuss rates on Dec. 17.
Nominal exports slumped by 10.7 percent year-on-year in October, while imports dipped by 5.9 percent.
The central European economy has been highly dependent on foreign trade for its wealth catch-up with the richer western Europe.
But companies in the big automotive sector, led by Volkswagen's Skoda Auto, have been announcing work stoppages and job cuts as foreign and domestic orders dry up.
The central bank sees gross domestic product growth slowing to 2.9 percent next year from 4.5 percent in 2008.
A separate unemployment report showed the jobless rate rose to 5.3 percent in November from 5.2 percent in the previous month, and analysts expected an acceleration in job losses.
"The level of unemployment will end this year at 5.9 percent and will move toward 6.5 percent at the beginning of next," said Pavel Sobisek, chief analyst at UniCredit in Prague.
The crown currency initially weakened to 25.93 to the euro after the inflation and trade data but returned to 25.79 by 0838 GMT, from 25.82 ahead of the figures. (Editing by Andy Bruce)