May 6 (Bloomberg) -- Australia's trade deficit narrowed in March as iron ore, coal and wheat exports increased.

The trade shortfall shrank to A$2.74 billion ($2.6 billion) from a revised A$3.26 billion in February, the Bureau of Statistics said in Sydney today. The median estimate of 25 economists surveyed by Bloomberg News was for a A$2.9 billion gap.

Rising exports will bolster Australia's $1 trillion economy, which expanded at the slowest pace in a year in the fourth quarter because of a drop in resource shipments. The government forecasts overseas sales of raw materials will increase by the most in three decades over the coming 12 months, driven by demand from China.

``The trade deficit should improve markedly in the second half of the year due to a large rise in commodity prices,'' Alex Joiner, an economist at Australia & New Zealand Bank Ltd. in Melbourne, said ahead of today's report.

The Australian dollar traded at 94.66 U.S. cents at 11:37 a.m. in Sydney from 94.64 cents before the figures were released. The yield on the two-year government bond was little changed at 6.56 percent.

Exports rose 4 percent to A$19.2 billion in March from February, today's report showed. Iron ore shipments jumped 30 percent and coal rose 31 percent. Wheat increased 12 percent and meat surged 8 percent.

Monthly Deficit

The monthly trade balance has been in deficit since March 2002 as exporters battled bottlenecks at mines and congestion at ports and railways. Crop production has been cut by the worst drought in a century in the southern parts of the nation.

Economic growth slowed to 0.6 percent in the fourth quarter as transport constraints reduced exports from Australia, the world's largest shipper of coal, iron ore and wool.

Floods in the northeast of the country have also constrained shipments of natural resources. BHP Billiton Ltd., the world's biggest mining company, said on Feb. 25 that heavy rainfall in Queensland may cut its share of coal output from two ventures by as much as 15 percent of last year's total.

Overseas shipments account for about 20 percent of gross domestic product.

Resource-export sales may surge 30 percent to a record A$189.1 billion in the year ending June 30, 2009, the Canberra- based Australian Bureau of Agricultural and Resource Economics said on March 4.

Commodity Prices

Prices for Australia's top five commodity exports -- iron ore, coking coal, thermal coal, gold and crude oil -- have risen to records this year.

Total imports rose 1 percent to A$21.9 billion in March, today's report showed.

The highest borrowing costs in almost 12 years are leaving households with less money to spend on imported goods, and forcing companies to cut purchases of foreign-made machinery.

The central bank will probably keep its benchmark interest rate unchanged at 7.25 percent today, after increasing borrowing costs in March and February, according to economists surveyed by Bloomberg News. The decision is due at 2:30 p.m. in Sydney.

Imports of household electronics fell 7 percent and clothing declined 3 percent.