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UPDATE 1-Canada's August trade deficit narrows as imports fall

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* Canada exports down 0.1 percent, exports fall 3.1 percent * Canada surplus with the United States hits four-month high

OTTAWA, Oct 11 (Reuters) - Canada's trade deficit fell morethan expected in August, dropping to C$1.32 billion ($1.35billion), as imports declined by 3.1 percent, according toStatistics Canada data on Thursday

The deficit, the fifth in a row, was smaller than the C$1.90billion shortfall predicted by market analysts and down from arecord C$2.53 billion in July.

Exports dropped by 0.1 percent to C$37.47 billion,indicating that Canadian exporters are still finding it tough tocope with weak markets and a strong Canadian dollar. A 0.7percent decrease in prices offset a 0.7 percent increase involumes.

The value of imports fell to C$38.79 billion on widespreaddeclines in every sector except energy while volumes were down2.2 percent. It was the largest month-on-month fall in importssince the 4.4 percent drop recorded in May 2009.

Exports of industrial goods fell by 6.1 percent whileshipments of energy rose by 5.5 percent.

Exports to the United States -- which took 73.8 percent ofall Canadian exports in August -- increased by 1.4 percent whileimports fell by 4.3 percent. As a result, Canada's surplus withthe United States grew to C$3.48 billion from C$2.02 billion inJuly, the highest level since May when the surplus was C$4.61billion.

($1=$0.98 Canadian)

(Reporting by David Ljunggren; Editing by Leslie Adler)

((david.ljunggren@thomsonreuters.com)(+1 613 235 6745)(fax +1613 235 5890)(Reuters Messaging:david.ljunggren@thomsonreuters.com))

Keywords: CANADA ECONOMY/TRADE