The U.S. mechandise trade deficit increased last month, according to a Commerce Department report yesterday.

Although exports went up by 2.1 percent, imports rose by more, largley because of an increase in oil purchases.

The deficit for October was $1.86 billion, compared with one of $1.6 billion in the previous month. Despite two months of worsening figures, the Commerce Department expects the deficit for the year as a whole to be well below that of 1979. Commerce analyst David Lund said yesterday that the 1980 deficit is likely to be a little over $32 billion, down from $37 billion last year.

The recession earlier this year helped to cut down on imports into the United States, while the cheaper dollar and faster-growing overseas markets boosted exports for several months.

Oil imports in the first 10 months of this year have been down 23 percent in volume from the 2.55 billion barrels imported between January and October 1979. The drop is partly due to the slowdown in the economy and partly to increased conservation efforts after the rapid rise in oil prices last year.

Last month there was a 5.8 percent rise by volume in oil imports, to 186 million barrels. A price rise helped push the cost of the imported oil to $6.16 billion, 7.3 percent higher than in September. But Lund pointed out that the increase in volume was largely because October has one more day than September.

Total exports rose to $19.09 billion last month, while imports reached $20.94 billion. However the figure slightly overstates the import cost as it includes the cost of insurance and freight charges, while the export figures do not.

Manufacturing industry improved its trade performance last month as exports rose by $332 million and imports by only $106 million. The trade balance on manufacturing showed a surplus of $1.54 billion, compared with $1.31 billion in September.

Auto imports were down slightly by $210 million to $1.28 billion.

Lund said that the trade figures shows that U.S. exports are holding up better than had been expected to the recession in Europe. Exports to Europe rose by $171 billion in October to $5.54 billion, giving the U.S. a trade surplus of $1.35 billion. o

The trade deficit with Japan shrank slightly to $1.03 billion from $1.16 billion in September, with imports totaling $2.83 billion and exports $1.8 billion.