* Deficit drops by 16 pct, still higher than expected
* Exports hit highest level for three years
OTTAWA, March 1 (Reuters) - Canada's current account deficit shrank by 16 percent in the fourth quarter of 2011 on higher exports, but was still larger than market forecasts, Statistics Canada data indicated on Thursday.
The deficit fell to C$10.33 billion ($10.43 billion) from a revised C$12.32 billion in the third quarter. Markets had been expecting a shortfall of C$9.40 billion.
The overall balance on trade in goods jumped to C$3.13 billion from C$248 million. Exports of goods were up by C$6.68 billion to C$121.47 billion, the highest since the third quarter of 2008.
The services deficit edged up by C$60 million to C$6.16 billion on a lower commercial services surplus and a higher transportation deficit.
For 2011 as a whole the current account deficit fell to C$48.30 billion from a record high C$50.86 billion in 2010.
$1=$0.99 Canadian Reporting by David Ljunggren; Editing by James Dalgleish