WASHINGTON, Jan 10: The U.S. trade deficit in November was the smallest in 16 months, as a weak dollar and solid foreign economic growth helped U.S. exports set a record, a Commerce Department report showed on Wednesday.

The better-than-expected data was evidence of a stronger US economy in the fourth quarter of 2006, and some analysts said it was a sign the huge trade deficit could be headed lower in 2007 after setting another annual record last year.

Morgan Stanley economists raised their estimate of fourth-quarter U.S. economic growth to 2.8 per cent, from 2.5 per cent previously, while a Bank of America analyst said the US economy advanced at a 3 per cent annualised pace in the last three months of 2006.

The dollar gained broadly on the news the US trade gap had narrowed for the third month in a row, which investors believed made it even less likely the Federal Reserve would cut interest rates early in 2007.

The huge trade gap has been a long-term drag on the dollar versus other currencies.—Reuters