A much higher-than-forecast 10.82 percent jump in imports in October was driven by capital goods and oil, reflecting the record levels of foreign direct investment that the country has attracted as well as rising domestic demand for fuel.

Exports dropped 7.61 percent in a seventh consecutive monthly decline, showing that weak global demand will continue to dampen the economy into the fourth quarter. The trade balance, a worry for investors, had been expected to improve.

"Renewed pressure on the current account could pose downside pressure on the currency and other asset markets," said Radhika Rao, economist at Forecast in Singapore.

The rupiah, though, held its ground after the data at 9,600 to the U.S. dollar, having lost 5.5 percent this year to make it the worst performing emerging market Asian currency. Jakarta stocks traded 0.1 percent lower.

Import Surge

The fall in October exports was smaller than a 9.35 percent drop the previous month, pointing to a slight improvement in shipments to Asian countries, but larger than a decline of 4.79 percent forecast in a Reuters poll.

The consensus forecast for imports was a slight growth of 0.62 percent and a trade surplus of $650 million. The country registered trade deficits for four straight months, from April through July.

The import surge came as Indonesia's economy is increasingly being driven by investment to feed buoyant consumer demand, as rising wages lead a new middle class to buy more cosmetics, smartphones and cars.

Imports of capital goods - a leading indicator for foreign direct investment - jumped 18.2 percent in October, though imports of consumer goods fell 2.3 percent from the previous month.

Greater investment in manufacturing and rising wealth are also boosting the country's need for fuel, gas and power, at a time when local production is sagging. Imports of crude oil surged 37.9 percent from September and gas imports rose 10 percent.

But the widening trade deficit caused by surging imports may put off portfolio investors.

"The worsening trade balance completely overshadows the improving inflation picture. We had expected a stronger export outcome in line with regional trends and in view of improving export PMIs. We now expect Indonesia rupiah pressure to persist," said Aninda Mitra, head of Southeast Asia economics at ANZ bank in Singapore.

Rates on Hold

The uncertain trade outlook and mild inflation means Bank Indonesia will likely leave its benchmark rate unchanged at a record low 5.75 percent at its meeting on Dec. 11 and into 2013, economists say.

Inflation slowed more than expected to 4.32 percent in November on an annual basis, from October's 4.61 percent pace, as food prices declined, separate data showed on Monday.

That compared to expectations for a 4.54 percent rate in a Reuters poll and was well within Bank Indonesia's target for 3.5-5.5 percent this year.

"Amid manageable inflation this year, the central bank's focus should continue to be on the outlook in the next three to six months for the external account," said Wisnu Wardhana, economist at CIMB Niaga in Jakarta.

Indonesia's Finance Minister Agus Martowardojo said last month that the economy would likely expand 5.9-6.3 percent in the fourth quarter, potentially a further slip from the previous quarter when weak exports dampened growth to 6.2 percent, the slowest in two years

An HSBC survey of factory managers released on Monday showed a record rise in new orders in November on stronger Asian demand, although the manufacturing sector expanded at a slower pace than the previous month. (Reuters)