The U.S. trade deficit widened slightly more than expected in December, as stronger U.S. economic growth lifted imports to the highest level in three-and-a-half years.

The same Commerce Department report on Friday showed the closely watched deficit with China last year soared to a record high $295.5 billion, underscoring a continuing irritant in the U.S.-China relationship ahead of top level talks next week.

The monthly U.S. trade gap swelled to $48.8 billion as goods imports climbed to the highest level since July 2008, just before the financial crisis caused world trade to plunge.

Analysts surveyed before the report had expected the December trade deficit at $48.0 billion, up from a revised estimate of $47.1 billion in November.

U.S. exports grew slightly in December, with records set for petroleum, services and advance technology goods.

Omer Esiner, chief market strategist at Commonwealth Foreign Exchange in Washington, said the meager growth in exports in December could be due to somewhat soft global demand, raising longer-term concerns.

Continued improvement in economic growth here will cause imports to improve. But it would be more concerning to see exports coming off the boil. That was a big part of the improvement we saw last year, Esiner said.

Traders shrugged off the report, remaining focused on developments in Europe. U.S. stock index futures fell on news of a setback in Greek debt bailout talks, while U.S. Treasury bond prices rose. The dollar rose against the euro.


Graphic on U.S. trade balance data:


For the year, the U.S. trade gap rose 11.6 percent to $558.0 billion, the highest since 2008.

Exports last year rose 14.5 percent to a record $2.1 trillion, keeping the United States on pace to meet President Barack Obama's goal of doubling exports in five years.

Imports grew 13.8 percent to a record $2.7 trillion, with records set in several categories.

Auto imports rose to the highest level since 2007 and petroleum was highest since 2008. The average price for imported oil in 2011 was a record high $99.78 per barrel

The record trade deficit last year with China is certain to reinforce concerns in Congress about Beijing's currency and trade practices ahead of a meeting next week between Obama and the Asian giant's expected next leader, Vice President Xi Jinping.

U.S. exports to China jumped 13.1 percent to $103.9 billion. But that was overwhelmed by a 9.4 percent increase in imports from China, which pushed the tally to a record $399.3 billion.

Even as the U.S. trade shortfall with China grew, other data on Friday showed China's overall current account surplus shrank in 2011, offering Beijing fresh evidence to show critics of its currency policy that it is relying less on external demand.

However, a big import drop in January combined with a smaller export decline left China with the biggest trade surplus in six months, confounding expectations of a further narrowing.

Last year, the Democratic-controlled Senate passed legislation to pressure China to raise the value of its currency, but that bill hit a dead end in the Republican-controlled House of Representatives.

Many lawmakers believe that China deliberately undervalues its currency to give its companies an unfair price advantage, contributing to the huge bilateral deficit.

The U.S. trade deficits with the European Union and Canada also expanded in 2011.

(Reporting By Doug Palmer; Editing by Neil Stempleman)