WASHINGTON (AP) -America’s trade deficit unexpectedly jumped to a new record in August, providing ammunition for Democrats to attack Republican trade policies in the closing weeks of the fall elections.

The gap between what the U.S. exports and what it imports rose by 2.7 percent to $69.9 billion, marking the second straight month it has set a record, the Commerce Department reported Thursday. Wall Street had been looking for a slight improvement.

The deterioration was led by another record foreign oil bill, which pushed imports up to an all-time high, swamping a solid increase in exports, which also set a record. The politically sensitive trade deficit with China also set a monthly record at $22 billion.

With oil prices falling from the $77 per barrel level set in July to less than $60 per barrel this week, analysts said the August figure could be the peak for the deficits. But they cautioned that any improvement will come slowly given the huge gap between what America imports and what U.S. companies are able to sell overseas.

Democrats, hoping to take control of the House and Senate from Republicans, contend the August deficit underscored the need for a change in trade policies being pursued by President Bush and the Republican Party.

They said the administration has failed to crack down on unfair trade practices of other nations including China’s currency manipulation and its widespread piracy of U.S. goods.

Democrats hope those arguments will resonate with voters, especially in the Rust Belt states of the Midwest and Northeast, which have been battered by the loss of nearly 3 million U.S. manufacturing jobs since 2001.

“The president’s failed economic policies have resulted in another month of record trade deficits, once again highlighting the need for a new direction,” said House Minority Leader Nancy Pelosi, D-Calif.

She and 12 other Democrats signed a letter to Bush urging tougher action to crack down on copyright piracy in China and other countries, which they said was costing the U.S. economy $250 billion a year.

Private economists said the worsening trade deficit would likely shave as much as 0.8 percentage point off overall economic growth in the third quarter. Many analysts believe the economy will grow by 2.5 percent or less in the second half of the year, reflecting a sharp slowdown in the once-hot housing market.

The Federal Reserve, in its latest snapshot of business conditions around the country, said Thursday that the economy continued to grow at a moderate pace in the early fall despite a “widespread cooling” in housing activity.

The widening trade gap in August occurred even though U.S. exports of goods and services set a record, rising by 2.3 percent to $122.4 billion, helped by strong increases in sales of commercial jetliners, drilling equipment and computers.

The increase in exports was offset by a 2.4 percent rise in imports, which also set a record at $192.3 billion, reflecting a big rise in America’s foreign oil bill.

The trade deficit, running at an annual rate of $784 billion through August, is on track to set a fifth consecutive annual record, topping last year’s mark of $716.7 billion.

“How long will the free trade crowd keep making excuses for an out-of-control trade deficit,” asked Sen. Byron Dorgan, D-N.D., one of the administration’s harshest trade critics.

The deficit with China shot up by 12.2 percent to a record of $22 billion in August and is running 13.5 percent above last year, when it hit $202 billion, the highest ever recorded with a single country.

“This is more evidence that America’s trade policy with regard to China is a complete failure,” said Alan Tonelson, a trade analyst with the U.S. Business and Industry Council, a group of 1,500 small- and medium-size manufacturing companies.

Treasury Secretary Henry Paulson, the former head of Goldman Sachs, announced on a visit to China last month a new high-level dialogue with China aimed at resolving contentious trade issues.

The first meeting is scheduled for December in Beijing, but the effort suffered a setback this week with the announcement that Deborah Lehr, a China expert selected by Paulson to lead the effort, was resigning for personal reasons after less than a month on the job.

American manufacturers say China is keeping its currency artificially low against the dollar by as much as 40 percent to make Chinese goods cheaper in the U.S. and American products more expensive in China.

The $4.6 billion increase in imports was led by a $1.1 billion increase in oil imports, which hit a record high of $29.7 billion. The average price per barrel of imported crude oil rose to a record of $66.12.

The U.S. trade deficit with Mexico jumped 22.2 percent to a record of $6.2 billion last month while the deficit with Canada rose by 2.5 percent to $6.1 billion.

The deficit with the European Union fell by 17.5 percent to $11 billion while the deficit with Japan dropped 1.3 percent to $7.5 billion.

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On the Net:

Trade report: http://www.census.gov/ft900

Federal Reserve: http://www.federalreserve.gov

AP-ES-10-12-06 1537EDT