The U.S. trade deficit in 2001 showed the first improvement in six years as the recession cut into America's appetite for foreign goods, the Commerce Department reported Thursday. Still, the $346.3 billion imbalance was the second-largest deficit in history.

The 7.8 percent improvement in the overall deficit last year came after the imbalance had soared by 43.5 percent in 2000 to an all-time high of $375.7 billion.

Many economists predict the deficit will retreat further this year. But this forecast depends on overseas economies gaining strength and helping to offset rising U.S. demand as the American economy posts an expected rebound from its first recession in a decade.

In December, the monthly trade gap narrowed by 11.4 percent to $25.3 billion, the best showing since September.

In another report Thursday, the Labor Department said the number of Americans filing first-time claims for unemployment benefits rose by 10,000 to 383,000 last week.

The increase was larger than had been expected but analysts said it did not alter their view that the labor market is beginning to show signs of stabilizing after the sharp surge in layoffs last year following the September terrorist attacks.

For all of 2001, China retained its top spot as the country with the largest trade imbalance with the United States. China had overtaken perennial front-runner Japan in 2000.

America's deficit with China totaled $83.05 billion, down slightly from the all-time high of $83.83 billion hit in 2000. President Bush was in China on Thursday, pressing the U.S. case that the Asian giant must honor the commitments it made in joining the World Trade Organization last year to lower its high trade barriers and permit sales of more U.S. goods in the world's largest market.

U.S. goods exports to China set a record last year of $19.2 billion but imports from China also hit a high of $102.3 billion.

In contrast to China, the U.S. deficit with Japan showed a dramatic improvement last year, narrowing to $68.96 billion, the lowest level since 1998, and down from a deficit of $81.56 billion in 2000.

The improvement in the overall trade imbalance in goods and services marked the first narrowing in the deficit since a small 0.3 percent decline to $96.4 billion in 1995. Last year's improvement reflected drops in imports and exports.

Exports were down 5.8 percent to $1.00 trillion after topping the $1 trillion mark for the first time in 2000 with sales abroad of $1.07 trillion.

Imports dropped 6.3 percent to $1.35 trillion, the first time imports have fallen since 1991, the year the last recession ended.

A narrowing trade deficit is one of the few benefits of a recession as weakening demand cuts into purchases of both foreign goods and domestic products.

The slumping economy did not cut into America's appetite for foreign oil last year as the amount of petroleum imports hit a record 4.48 billion barrels. But a big drop in oil prices did trim the bill for this oil, which fell to $100.9 billion, down from $117.1 billion in the previous year.

The average per-barrel price for crude petroleum dipped to $21.41 last year, the lowest since 1999 and down from $26.44 in 2000.

America's deficit with its largest trading partner, Canada, hit a record $53.3 billion last year, up 2.6 percent from a deficit of $51.9 billion in the previous year.

The deficit with Mexico, the other partner in the North American Free Trade Agreement, widened by an even larger 21.8 percent to a record $29.9 billion.