Vietnam’s trade deficit widened in May from the previous month, adding pressure to curb the gap as the nation tries to rebuild its foreign-exchange reserves.

The shortfall was $1.7 billion, compared with a revised $1.49 billion in April, based on preliminary figures released by the General Statistics Office in Hanoi Wednesday. The deficit was $6.59 billion for the five months through May.

Vietnam devalued the dong for the fourth time in 15 months on Feb. 11 to help curb the gap amid concern funding it is eroding the government’s foreign-currency holdings. The deficit and size of reserves were about the same at end-2010, raising the specter of a hard-currency shortage causing a financial crisis, the Heritage Foundation in Washington said May 23.

“Watch out for the trade deficit,” Tai Hui, the Singapore-based head of Southeast Asian research at Standard Chartered Plc, wrote in a note before the release. It “deserves close monitoring in case it gains further momentum in the months ahead,” Hui said.

The dong on Wednesday was little changed at 20,630 per dollar as of 2 p.m. local time, according to data compiled by Bloomberg. The VN Index on the Ho Chi Minh City Stock Exchange tumbled 4 percent today and is down about 20 percent in 2011, the biggest fall in Asia.

Vietnam’s consumer prices climbed 19.78 percent in May from a year earlier, the fastest pace among 14 Asian economies tracked by Bloomberg, adding pressure for further increases in interest rates that may also slow economic growth.

‘Low’ reserves

Foreign reserves declined 46 percent to $12.4 billion by the end of 2010 from 2008, the World Bank said in March. They are “at low levels, unlike in neighboring countries,” the United Nations Economic and Social Commission for Asia and the Pacific said this month.

Strong domestic demand has underpinned Vietnam’s trade deficit, with the government now willing to sacrifice economic growth in order to cut into the gap, Credit Suisse Group AG said on May 5.

The economy may expand 6.5 percent in 2011, down from an earlier target of 7 percent to 7.5 percent, Minister of Planning & Investment Vo Hong Phuc said May 3. The government is “no longer prioritizing the growth rate,” he said.

Imports rose to $9.2 billion in May from a revised $8.93 billion in April, today’s report showed. For the five months through May, they rose 29.7 percent to $41.34 billion.

Exports rose to $7.5 billion in May from a revised $7.44 billion in April. For the five months through May, they rose 32.8 percent to $34.75 billion.