* Trade surplus drops to C$33 million
* Fall in exports outstrips drop in imports
* Housing prices continue to advance
By Randall Palmer
OTTAWA, April 12 (Reuters) - Canada's export sector turned in a disappointing performance in February, despite indications that demand was rotating away from household and government spending to exports and business investment.
The country's trade surplus declined to a negligible C$33 million ($34 million) in February from C$382 million as a decline in exports outstripped a fall in imports, Statistics Canada said on Tuesday.
Surging fourth-quarter exports had been the leading factor in boosting growth for that quarter, but in February, exports fell 4.9 percent to C$35.9 billion, primarily as the result of lower energy and automotive sales.
The decline in volume terms was 5.2 percent, and this is important since it is reflected in inflation-adjusted gross domestic product numbers.
"The theme of a rotation in the drivers of economic growth away from domestic demand and towards net exports suffered a slight setback due to today's weaker than expected trade," said Mazen Issa, a macro strategist at TD Securities.
A Statscan analyst said one factor behind lower auto exports was that they were coming off an increase in January that was due to the introduction of a new car model.
Imports fell by 4.0 percent (4.3 percent in volume) to C$35.8 billion, also on lower automotive and energy products.
The Bank of Canada said on Tuesday that demand was indeed rebalancing away from government and household spending, but it said the Canadian dollar could weigh on exports.
"The improvement in net exports is expected to be further restrained by ongoing competitiveness challenges, which have been reinforced by the recent strength of the Canadian dollar," the bank said in its decision on Tuesday to keep its overnight target rate steady at 1 percent.
The median forecast of analysts surveyed by Reuters was for the trade surplus to rise to C$500 million from an originally reported C$116 million in January. February's monthly decline in the surplus was the second in a row. [ID:nN10113454]
The trade surplus with the United States rose to C$4.6 billion from C$4.1 billion, while the deficit with the rest of the world increased to C$4.5 billion from C$3.8 billion.
Statistics Canada also said new housing prices rose by 0.4 percent in February from January. The last decline in housing prices was registered in July 2010.
Separately, real estate brokerage Royal LePage said the strength in the housing sector had been fueled by low interest rates and a recovering economy.
In the first quarter, the average price of a detached bungalow was up 4.3 percent at C$341,355 ($355,578), compared with a year ago, a Royal LePage survey of more than 250 neighborhoods across the country showed.
"Canada's real estate market has maintained momentum coming out of 2010, indicating that the post-recession recovery is continuing," said Royal LePage Real Estate Services Chief Executive Phil Soper.
($1=$0.96 Canadian) (Additional reporting by Ka Yan Ng in Toronto; editing by Rob Wilson)