China swung to a surprise trade deficit in February of $7.3 billion, its largest in seven years, as the Lunar New Year holiday dealt an unexpectedly sharp blow to exports.

It was China’s first trade deficit since March last year and its biggest since February 2004. Economists, who had forecast a small surplus of $4.95 billion, said the sudden drop was likely to prove temporary.

“We did expect exports to slow last month, but I think nobody had expected such a weak outcome,” said Nie Wen, an analyst at Hwabao Trust in Shanghai.

“There is little chance that China will have a trade deficit again, and the monthly trade surplus may pick up in the second half of this year,” he added.

The deficit will at least be welcome news on two fronts for the Chinese government, helping it dampen inflationary pressure and deflect calls for faster yuan appreciation.

Cash inflows from the country’s vast trade surplus over the past few years have been a root cause of China’s recent run-up in prices.

Inflation reached a 28-month high of 5.1 percent in the year to November.

With tightening policies beginning to have an impact, China is confident that it can achieve its 2011 goal of holding inflation to an average of 4 percent this year, Ma Jiantang, the government’s statistics chief, said.

His comments followed a report in an official newspaper that bank lending in February was much less than expected, indicating that Beijing has scored some success in reining in credit issuance, a crucial part of its campaign to control inflation.

Until that number is confirmed, though, attention will be squarely on China’s precipitous drop in exports.

China exports grew 2.4 percent in February from a year earlier, the customs agency said, well short of forecasts for a rise of 26.2 percent.

Imports increased 19.4 percent, missing market expectations of a 32.3 percent increase.

The data hit markets when investors are already worried that high oil prices will undermine global growth. Japan’s Nikkei stock average fell 1.5 percent and stocks elsewhere in Asia slid 1.4 percent.

“It’s come on a day when commodity prices are off, and investors are worried about global growth and it’s just accentuated the market pullback,” said Shane Oliver, head of investment strategy at AMP Capital Investors.

“The Lunar New Year does heavily distort Chinese trade data and I’ll be inclined not to read too much into it. But the market is obviously feeling nervous and has probably read a bit more into it.”

Holiday Effect

The government has in the past pointed to a narrower trade surplus as evidence that it is making headway in tilting China away from excessive reliance on exports, a shift that is seen as a crucial part of putting the global economy on firmer footing.

But many economists cautioned against reading too much into one month’s trade data, especially in the first quarter.

Chinese exports typically slump at the start of the year, with the country’s factories shut or running at half speed for weeks because of China’s New Year holiday, which this year fell in the first week of February.

“We believe the trade deficit is likely to be a temporary phenomenon distorted by the Lunar New Year. During the several weeks following the Lunar New Year, the holiday distortions affect exports much more than imports because exporters have a much greater tendency to take extended holidays,” Yu Song and Helen Qian, economists with Goldman Sachs, said in a note.

Yet the holiday effect had been expected to weigh on exports when analysts made their initial forecasts, so some said that the downside disappointment in the data was, in fact, a worry.

“Both imports and exports are lower than expected, and seasonal factors alone can’t explain the sharp monthly drop,” said Xu Biao, economist with China Merchants Bank in Shenzhen.

“It is definitely not a good sign. The size of imports is already read as a measure of domestic demand. But now imports have dropped significantly, and it points to a serious weakening in domes