The soaring cost of foreign oil and an unexpected surge in imports of industrial products and Japanese cars lifted the U.S. merchandise trade deficit for October to $11.6 billion, its highest level in 32 months, the government reported yesterday.

The 12.2 percent increase in imports, to $46.4 billion, completely overwhelmed the best performance ever by U.S. companies in selling machinery, chemicals and autos to overseas buyers. Exports increased by 8.6 percent, reaching $34.8 billion.

The October deficit, the highest since February 1988, jumped 24.5 percent from the September level of $9.33 billion. Analysts said that rising oil prices after Iraq's takeover of Kuwait on Aug. 2 appear likely to keep the 1990 trade deficit above $100 billion for the seventh straight year. Before the oil shock, there were expectations that the deficit might fall to about $95 billion.

Trade analysts were surprised at the continued U.S. appetite for foreign goods despite the slowdown in the economy and the fall in the value of the dollar. Both of those factors usually cut the flow of foreign goods by making them more expensive and reducing demand.

The increase in non-oil imports was paced by new cars, largely from Japan; capital goods (machines used in the manufacturing process); and consumer products. Howard Lewis III, international vice president of the National Association of Manufacturers (NAM), said the most puzzling aspect of the import surge was the 23 percent increase in Japanese car imports "in the face of auto sales falling off right and left."

William T. Archey, international vice president of the U.S. Chamber of Commerce, said the heavy import surge would be "devastating" to the U.S. economy if it continues. He noted that imports came from every major trading partner and included a 15 percent increase from Canada, a 23 percent rise from Japan and a 33 percent increase from the European Community.

But Allen Sinai, chief economist of the Boston Co., dismissed the high level of imports as "an aberration" that will be either revised downward in coming months or "slowly eroded" as unsold goods get stuck in the pipeline. Roger Brimmer of the economic forecasting firm of DRI-McGraw Hill Inc. in Lexington, Mass., said the soft U.S. economy means foreign goods are likely to remain on warehouse shelves for a long time.

Oil imports rose to $7.2 billion, up $1 billion from the month before, as the price rose to an average of $29.04 a barrel -- up $4.73 from September.

Commerce Secretary Robert A. Mosbacher praised the growth in exports, which rose to $35.8 billion, an increase of 8.6 percent, and said U.S. sales overseas provide "the strongest engine of economic growth."

Sinai said the exports "provide some cushion" for the country's economic downturn. Said Brimmer: "The world's economic pie is growing and we are getting a larger slice of it." The NAM's Lewis recalled that most analysts had expected exports to tail off by mid-year, so their continued strong performance was a pleasant surprise.

Less pleasant, however, was the sharp deterioration in the October trade balance with the United States's major trading partners.

The deficit with Japan, the largest, increased by $1.4 billion, or 31 percent, to $4.5 billion.

The deficit had averaged about $3.3 billion a month compared to a $4.2 billion monthly average last year.

Similarly, the balance with Western Europe took a $1.5 billion turn for the worse, shifting from a $885 million surplus in September to a $632 million deficit in October.