The lion's share of the month's 57.6 billion-dollar deficit came from oil imports and from China, but excluding those factors, the trade balance showed improvement.

Adjusted for inflation, the deficit was the lowest since February 2004, and in absolute terms the lowest since January, Commerce Department figures showed.

The trade gap was also better than the average analyst expectation of a deficit of 59.5 billion dollars, and marked a 2.4 percent drop from July's revised figure of 59 billion dollars.

The lower trade deficit is generally positive for the US economy since it means more economic output is coming from domestic sources. It also eases pressure on the dollar by reducing outflows of the US currency.

Avery Shenfeld, economist at CIBC World Markets, said the report shows "we're finally seeing the impact of a more competitive US dollar exchange rate coupled with a drag on imports from a slower US growth pace."

Sal Guatieri, economist at BMO Capital Markets, said that the trade improvement will mean a higher level of US economic output or gross domestic product (GDP).

"It looks like trade will add significantly to third quarter GDP, it could be on the order of a full percentage point," he said.

"Strength in trade is expected to be an important offset to weakness in the domestic economy resulting from the ongoing housing market correction," added Rishi Sondhi, economist at RBC Financial Group.

The US economy grew at a 3.9 percent pace in the second quarter but most economists see a softer pace in the second half of the year.

Robert Brusca at FAO Economics said the report appears positive for the economy.

"It is surging exports that are narrowing the deficit more than 'weak' imports," he said.

Exports rose 0.4 percent in August to a record 138.3 billion dollars, helped by the weak dollar. Imports meanwhile fell 0.4 percent to 195.9 billion dollars.

The figures showed the US deficit in goods decreased 1.2 billion dollars from July to 66.6 billion, and the services surplus increased 200 million dollars to nine billion.

Over the first eight months of the year the cumulative US trade deficit is 471.9 billion dollars, down from 517.5 billion in the same period in 2006. If the trend continues, 2007 would see the first drop in the trade defcit in six years.

Oil prices remained a big factor in the deficit, accounting for 24.3 billion dollars of the August deficit, with the average price of an imported barrel hitting a record 69.09 dollars.

The other big factor in the deficit was China, which accounted for 22.5 billion dollars of the deficit even though the figure was down 5.4 percent for the month.

The massive imbalance with China has prompted calls in Congress for US sanctions, but administration officials have opted for negotiations and in some cases complaints at the World Trade Organization.

On Thursday, Washington filed its fourth WTO complaint agains China, challenging Biejing's restrictions on imports of products of copyright-intensive industries such as films, music and books.

US Trade Representative Susan Schwab said the trade balance improvement shows Washington's free-trade agenda is working.

"Strong export expansion is lending critical support to the US economy right now," Schwab said in a statement.

"Exports have accounted for 40 percent of US economic growth over the last four quarters ... Removing barriers and expanding trade supports productivity and income growth, and better paying jobs in America."

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