(Corrects third paragraph from the end to say yuan is believed to be undervalued against the dollar)

WASHINGTON - The U.S. trade deficit widened in September by an unexpectedly large 18.2 percent, the largest increase in more than 10 years, as oil prices rose for the seventh straight month and imports from China bounded higher.

Adding urgency to talks President Barack Obama will have with Chinese leaders in coming days, the monthly trade gap grew to $36.5 billion, from a slightly revised estimate of $30.8 billion in August, the Commerce Department said on Friday.

The monthly trade gap grew to $36.5 billion, from a slightly revised estimate of $30.8 billion in August, the Commerce Department said on Friday.

Wall Street analysts had expected the shortfall to grow modestly in September to around $31.65 billion.

Both U.S. exports and imports had their best month since December 2008. But in a sign of renewed U.S. economic growth, imports grew 5.8 percent in September, the biggest monthly gain since March 1993, while exports rose 2.9 percent.

Some analysts had expected more of an export boost because the drop in the value of the dollar against other major currencies makes American goods more competitive overseas.

But the overall upturn in U.S. demand is trumping the fall of the dollar, said Craig Peckham, an equity trading strategist with Jefferies and Company in New York.

TRADE FLOWS PICKING UP

Imports of industrial supplies and materials showed the biggest gain in September, suggesting that U.S. manufacturers are ramping up for production.

International trade flows are picking up as massive stimulus from governments and central banks lift the global economy out of its deepest swoon since the 1930s.

The EU statistics office Eurostate said the euro-zone economy grew 0.4 percent in the third quarter from the second quarter, snapping the region's recession. For details, see

The U.S. government said last month the U.S. economy grew at an annual rate 3.5 percent in the third quarter after four contractionary quarters.

The average price for imported oil leapt to $68.17 per barrel and imports from the Organization of Petroleum Export Countries increased to $11.9 billion in September, both the highest since November 2008.

A separate report showed U.S. import prices rose for the third straight month in October, pushed up by a jump in the cost of fuel imports and the depreciating dollar.

Import prices advanced 0.7 percent after a revised 0.2 percent increase in September that was previously reported as a 0.1 percent gain, the Labor Department said.

The weak U.S. dollar is helping to lift U.S. exports, but at the same time, analysts cite it as a factor pushing up the price of oil and other commodities.

The U.S. dollar extended losses against the yen after the trade data. U.S. stock index futures held gains, while U.S. Treasury debt prices were steady at lower levels.

Although import prices were up, they were up less than expected. Again, with the weak dollar, you would have thought you would have seen more inflation on import prices, said Tim Ghriskey, chief investment officer with Solaris Asset Management in Bedford Hills New York.

US TRADE GAP WITH CHINA WIDENS

The closely watched U.S. trade deficit with China widened 9.2 percent to $22.1 billion as imports grew 8.3 percent to $27.9 billion, both also the highest since November 2008.

For a graphic on the U.S. trade deficit with China see: http://graphics.thomsonreuters.com/119/GLB_USCH1109.gif

The overall U.S. trade deficit, including with China, has fallen significantly this year in response to the worst economic downturn in decade.

But the gap with China narrowed just 15.9 percent in the first nine months of the year, compared with much bigger declines for Canada (79.6 percent), the European Union (42.0 percent) and OPEC (71.8 percent).

That has reinforced ideas that China's currency remains undervalued against the dollar, giving Chinese companies an unfair trade advantage.

President Barack Obama is expected to raise concerns about China's exchange rate regime when he meets with Chinese leaders next week in Beijing. On Friday he was in Japan for talks before heading to Singapore for this weekend's annual summit meeting with leaders of the Asia Pacific Economic Cooperation forum.

With U.S. unemployment the highest in 26 years, Obama has said he would press for a rebalancing of world economic growth where countries in Asia would open their markets to more American goods and rely less on exports to the United States and more on their own domestic demand.

(Reporting by Doug Palmer, Editing by Neil Stempleman)

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