Petrol prices hit US consumer mood

Figures from the US have shown that consumer optimism fell in May under the weight of higher petrol prices and rising mortgage interest rates.

Earlier, the US government offered some positive news on the economy as the US trade deficit narrowed unexpectedly in March based on a surge in export demand - but rising import prices kept alive jitters about inflation. The figures sent Wall Street shares even lower after a heavy sell-off on Thursday.

The University of Michigan's sentiment survey slumped to 79 in May from April's final 87.4, far below Wall Street forecasts for a reading of 86.1.

The Michigan reading was the lowest since 1993, excluding a one-month plunge in October in the aftermath of Hurricane Katrina.

The report was consistent with ideas on Wall Street that the Federal Reserve will end its almost two-year run of interest rate increases in June to brace for a slowdown in economic growth.

Earlier, the Commerce Department said record high export demand pushed the US trade deficit down to $62 billion in March, its lowest since August and a second straight month of narrowing.

Exports, including those to China, climbed to new highs - suggesting a weaker dollar is having the desired effect of boosting demand for American-made goods. Wall Street analysts had expected the gap to widen to about $67 billion on the back of higher oil import volumes.

Still, the overall U.S. trade deficit for the first quarter of 2006 was $196.2 billion, on track to exceed last year's record of $723.6 billion. The politically sensitive trade gap with China - which hit a record $202 billion in 2005 - widened in March to $15.6 billion. US exports to China were a record $5 billion, while imports from that country were $20.5 billion.

The Labor Department reported that the cost of imported petroleum jumped 11.5% in April, the biggest gain since March 2005. The increase boosted overall US import prices by an unexpectedly sharp 2.1% in April.

Ahead of the figures, the euro pushed past $1.29 against the dollar, though it fell back slightly to $1.2880 on Friday evening.