04/10/05 KUALA LUMPUR (Dow Jones)--Malaysia's exports rose abetter-than-expected 12.5% in August as companies shipped more electricalgoods, electronics and crude oil, offsetting a decline in palm oil sales,official data released Tuesday show.

The export performance highlights a rebound in trade that economists hadearlier predicted and raises hopes that Malaysia will meet its revised 5%full-year economic growth target.

A stronger economy will allow Malaysia to focus on reducing the fiscaldeficit, which Second Finance Minister Nor Mohamed Yakcop said Tuesdaywill be cut to 3.5% next year despite rising inflation.

Exports rose to MYR46.63 billion in August, exceeding the 7.4% averagegrowth forecast by economists in a Dow Jones Newswires poll and July's2.9% gain. Non-seasonally adjusted exports rose 7% from July, data fromthe International Trade and Industry Ministry show.

Exports of electrical and electronics goods rose 8.9% on year to MYR22.96billion, while crude oil exports jumped 35% to MYR2.89 billion. Palm oilshipments fell 3% to MYR1.93 billion.

"It is encouraging electronics is growing, and it is in line with regionaltrends," said Daniel Hui, an economist at investment bank JPMorgan inSingapore.

Imports in August rose 10.3% on year to MYR36.81 billion, slightly lowerthan the 11.7% increase economists expected but higher than July's 7.4%rise.

On month, non-seasonally adjusted imports slid 2.2% in August because oflower imports of intermediate and capital goods, MITI said.

Bank Negara Malaysia Governor Zeti Akhtar Aziz said in August a rebound inelectronics exports in the second half could drive growth.

Southeast Asia's third-largest economy expanded 4.1% in the second quarterfrom a year earlier, braking sharply from the revised 5.8% on-yearexpansion in the first quarter.

Inflation Not A Major Concern Yet

Separately, Second Finance Minister Nor Mohamed Yakcop on Tuesdaydownplayed worries about rising inflation, saying it wasn't a majorgovernment concern.

"At this point in time, it is not that much of an issue," said Nor Mohamedat a breakfast discussion on the 2006 budget with corporate leaders.

Malaysia has seen higher inflation in the past, Nor Mohamed said.Inflation stood at 3.7% in August, the highest since 3.8% in February1999.

He said there is no "immediate need" to raise interest rates to fightinflation as prices are climbing on record-high oil prices, not increaseddemand.

This isn't "demand sort of inflation," he said.

Many economists expect Bank Negara Malaysia to raise interest rates by asmuch as 50 basis points by the end of the year. The central bank'sbenchmark overnight policy rate has stayed at 2.7% since April 2004.

Nor Mohamed also said the level of the Malaysian ringgit is being drivenby the market. One reason it hasn't moved much since being unpegged fromthe U.S. dollar in July is because of the performance of other currencies.The ringgit was trading at MYR3.77 to the U.S. dollar early Tuesday,slightly stronger than the MYR3.80 at which it had been pegged.

Nor Mohamed also said the government remains committed to reducing thebudget deficit to 3.5% of gross domestic product in 2006 from 3.8% thisyear, calling a deficit of 3% "sustainable."

"At 3% there is no issue of the deficit becoming a problem," he said.