The U.S. trade deficit narrowed in January to $41.1 billion, reflecting a pickup in foreign demand for a variety of American-made goods, including industrial supplies, household appliances and cosmetics.

The Commerce Department reported Wednesday that the trade gap narrowed by 8.4 percent in January from December's deficit of $44.9 billion as U.S. exports posted a solid gain and imports fell. Even with the improvement, however, January's trade gap marked the second biggest monthly deficit on record.

The trade deficit in January ended up being smaller than the $43.5 billion deficit that economists were forecasting.

The narrowing of the trade deficit came even as the average price of imported crude oil jumped to $27.73 a barrel in January, the highest price since November 2000.

January's per barrel price was $3.58 higher than December's, marking the largest one-month gain since September and October 1990.

Fears about a possible war with Iraq are contributing to higher energy prices.

In January, exports of goods and services rose by 1.6 percent to $81.9 billion.

Exports of industrial supplies, including chemicals and steel, increased to $14 billion, the highest level since April 2001. Overseas sales of U.S. made consumer groups -- a broad category that includes household appliances, cosmetics and furniture -- rose to $7.4 billion, the best showing since May 2001.

The dollar has lost altitude over the past year, dropping in value by around 14 percent, a good development for U.S. exporters because it makes their products more competitive on foreign markets and less expensive for overseas buyers.

Imports, however, dropped by 2 percent in January to $123 billion, reflecting Americans' weaker demand for a wide variety of foreign-made goods.

Sales of foreign-made cars to the United States dropped by $863 million to $16.8 billion in January. Imports of consumer goods, including TVs, VCRs and household appliances, also lost ground, declining to $26.9 billion in January. Imported capital goods, such as airplanes and telecommunications equipment, went down by $270 million to $24.3 billion in January.

War fears, a turbulent stock market and higher energy prices are just some of the factors crimping demand from American consumers and businesses.

To combat the trade deficit, the Bush administration says the United States should seek to boost American exports by attacking foreign trade barriers, rather than raising barriers to imports coming into the country.

The United States has free trade agreements with Mexico and Canada, its partners in the North American Free Trade Agreement, and with Israel and Jordan, deals that were struck in an effort to promote economic development in the Mideast.

The administration has said it hopes recent deals with Singapore and Chile will be just the first in a string of agreements with countries in Africa, Central America and Australia. Its biggest goal is creation of a free trade zone covering 34 nations in the Western Hemisphere.

Trade critics, including labor unions, say the bloated deficit is evidence that Bush's free-trade policies are not working and are contributing to steady job losses in manufacturing.

America's deficit with Canada increased to $5 billion in January, the highest level in two years.

However, this country's politically sensitive trade deficit with China narrowed a bit -- to $9.4 billion in January from $9.5 billion in December. America's trade imbalance with Japan also shrank, to $5.2 billion in January from $7.1 billion in December.