By Ismail Shakil

OTTAWA (Reuters) -Canada recorded a smaller-than-expected trade deficit in July, as a West Coast dock workers' strike weighed more heavily on imports than on exports, Statistics Canada data showed on Wednesday.

Canada's trade deficit with the world came in at C$987 million ($722.97 million), lower than the C$3.65 billion shortfall analysts had forecast in a Reuters poll. June's deficit was revised to C$4.92 billion - the third largest on record - from a C$3.73 billion deficit initially reported.

Total exports rose 0.7% while imports decreased 5.4% in July.

Both were impacted by a 13-day dock workers' strike in British Columbia that disrupted operations at two of Canada's three busiest ports, Statscan said, adding that trade may also be affected in the coming months as freight backlogs continue to be cleared.

"This was pretty positive, surprisingly good data when you consider what we were dealing with in terms of the impact of the British Columbia port strikes in July," said Stuart Bergman, chief economist at Export Development Canada, the country’s export credit agency.

Slowing trade was among factors in an unexpected economic contraction in the second quarter and Bergman said Wednesday's trade report signals a good start to the third quarter on the export side of things.

The Bank of Canada on Wednesday held its key overnight interest rate at 5%, noting that the economy had entered a period of weaker growth, but said it could raise borrowing costs again should inflationary pressures persist.

The rise in exports was largely due to higher exports of canola, aircraft and other transportation equipment and parts offsetting the impact of the strike, Statscan said. By volume, exports fell 0.2%.

Imports recorded the biggest percentage decrease since January 2022, dragged lower by a decline in unwrought gold as well as the combined decreases of product categories, such as consumer goods and electronics, that rely on British Columbia ports. By volume, imports were down 4.3%.

The Canadian dollar was trading 0.1% lower at 1.3650 to the greenback, or 73.26 U.S. cents.

($1 = 1.3652 Canadian dollars)

(Reporting by Ismail Shakil; Additional reporting by Fergal Smith in Toronto and Dale Smith in Ottawa; Editing by Chizu Nomiyama and Mark Porter)