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* Canada exports down 1.6 percent, imports off 3.2 percent
* Exporters struggling with uncertain markets
By David Ljunggren
OTTAWA, July 3 (Reuters) - Canada's trade deficit shrank by almost 70 percent in May from April but only because imports fell twice as fast as exports did, Statistics Canada said in a downbeat report on Wednesday that reflected challenges for the economy.
The trade deficit - the 17th in a row - dropped to C$303 million ($289 million) in May from an upwardly revised C$951 million in April. Analysts had predicted a shortfall of C$730 million.
The data indicates exporters are still struggling to cope with uncertain foreign markets, while lower imports reflect a sluggish domestic economy.
Exports dropped by 1.6 percent as shipments of metal and non-metallic mineral products dropped by 15.0 percent while motor vehicles and parts fell by 3.8 percent.
After four consecutive monthly increases, imports slumped by 3.2 percent on lower shipments of energy products, which dropped by 18.4 percent, as well as metal ores and non-metallic minerals.
"It's quite a flat story ... I'm not terribly inspired by anything really I see inside of the details either. The auto sector is particularly soft," said Peter Hall, chief economist at Export Development Canada.
Hall told Reuters he was still confident the U.S. economy would improve in the second half of the year, which would help the Canadian economy.
Exports are a major driver of the Canadian economy and account for just under a third of gross domestic product. The Bank of Canada has repeatedly said it is worried about the limp export performance, which it cites as one of the reasons for keeping interest rates at near-record lows.
The total deficit for the first five months of year was C$2.972 billion, a fraction below the record C$2.973 billion January-May shortfall, recorded in 2012.
Import volumes were down 2.0 percent and prices fell by 1.2 percent. Export volumes dropped by 0.7 percent while prices were off 1.0 percent.
"With June economic data expected to be very weak due to the Alberta flood and Quebec construction strike, the Canadian economy could use a solid May ... Unfortunately, the trade figures aren't pointing in that direction," said Benjamin Reitzes of BMO Capital Markets.
Exports to the United States, which encompass 74.2 percent of all Canadian exports in May, fell 1.6 percent, while imports dropped by 2.0 percent - the first such decline in five months. As a result the trade surplus with the United States edged up to C$3.45 billion from C$3.41 billion in April.
Statistics Canada also revised March's trade data for a second time, posting a deficit of C$225 million on the month to reflect lower energy exports. The first revision, made in June, produced a March deficit of C$3 million after a initial surplus of $24 million.