Canada's trade surplus fell in December to C$5.2 billion ($4.2 billion) on higher imports but exports held firm despite a strong domestic currency, Statistics Canada said on Thursday.

The figure, which soothed fears a high Canadian dollar would pummel trade's contribution to growth, was slightly below analysts expectations of C$5.4 billion.

Statscan raised November's surplus to C$5.5 billion. Last month it corrected November's surplus to C$5.4 billion after a computer error skewed the data to C$7.3 billion.

"The economy is still managing quite well in the face of a strong loonie," BMO Nesbitt Burns chief economist Sherry Cooper said. The Canadian currency is known as the loonie for the waterfowl on the one dollar coin.

"The surplus for all of last year rose to C$67.2 billion from C$58.2 billion in 2003, on export growth of 7.6 percent and import gains of 6.2 percent. That hardly sounds like the strong currency crushed the trade sector," Cooper added.

In December the currency averaged 82 U.S. cents or C$1.2180, down from a 12-year high above 85 U.S. cents or C$1.1756 set in late November.

On Thursday, it fell briefly, after the U.S. reported a narrower trade deficit in December, but then rose to C$1.2435 against the U.S. unit, or 80.42 U.S. cents, by mid-morning from C$1.2498, or 80.01 U.S. cents, at Wednesday's session close.

"(We) expect Canadian exports will gradually trend higher through 2005 as global demand remains steady while the Canadian dollar is expected to stabilize," Export Development Corporation economist Todd Evans said.

Others said the fact that machinery and equipment imports were a big driver behind the erosion of December's trade surplus augured well for future export performance.

"This suggests that the increased pace of business investments noted in Q3 is still continuing. Ultimately, this should translate into increased competitiveness and therefore higher exports for Canadian firms," National Bank economist Marc Pinsonneault said.

December's Canadian trade data showed imports up 4 percent from November at C$31.273 billion and exports up 2.6 percent at C$36.482 billion, Statscan said.

The auto sector reversed a four-month slide in December, driving import demand higher while purchases of machinery and equipment from abroad also made an about face after four consecutive months of declines, Statscan added.

Colder temperatures and lower energy prices in December drove import demand to a record high of C$2.6 billion.

Exports of autos made in Canada also saw a rebound in December compared to November as did energy and industrial goods, Statscan said.

Overall in 2004 the trade surplus rose to C$67.2 billion compared with C$58.2 billion in 2003 on exports of C$430.4 billion and imports of C$363.1 billion, Statscan added. ($1=$1.25 Canadian) (Reuters)