The U.S. merchandise trade deficit narrowed by $2.7 billion in December to $6.3 billion, the Commerce Department said Friday.

Meanwhile, prices at the wholesale level edged down a tiny 0.1 percent in January as a big drop in energy costs helped provide a bright spot for an economy beset by war and recession.The Labor Department reported that the decline in its Producer Price Index last month occurred in spite of a record jump in the cost of alcoholic beverages as producers used higher federal taxes as an excuse for boosting their prices.

The January decline in wholesale prices followed an even bigger 0.6 percent drop in December. Both months were heavily influenced by falling gasoline prices. Oil costs, which had jumped sharply following Iraq's Aug. 2 invasion, have been coming down in recent months.

The government said December imports totaled $39.7 billion while exports reached $33.5 billion. In November the deficit was $8.9 billion.

December's imports were $3.4 billion less than November imports of $43.1 billion. Exports during the month were $700 million less than November's exports of $34.2 billion, the government said.

For the year, exports totaled $394 billion with imports of $495 billion for a deficif of $101 billion, down from $109.4 billion the year before.

The government said last year's deficit was the lowest since 1983.

Most of the change in exports came from decreases in automobile exports, which declined by $700 million. Industrial supply exports fell $500 million while foods, feeds and beverages were down $400 million.

Most of the change in imports came from a decrease in industrial supplies and materials of $1.7 billion; consumer goods, down $700 million; automobiles and parts, down $600 million and capital goods, down $300 million.

Imports of non-petroleum products totaled $34.4 billion in December with exports reaching $32.6 billion for a deficit of $1.9 billion.

Imports of petroleum products totaled$5.2 billion, down $1.1 billion from the $6.3 billion in November. The United States imported 98 million barrels of oil in December, 16 million barrels less than the month before.

The average price per barrel, $26.07, was down $3.37 per barrel from November.

The United States posted a $1.6 billion trade surplus with Western Europe and a deficit of $3.4 billion with Japan.