diff --git a/doc/src/sgml/libpq.sgml b/doc/src/sgml/libpq.sgml
index b856262d1e..aef1129844 100644
--- a/doc/src/sgml/libpq.sgml
+++ b/doc/src/sgml/libpq.sgml
@@ -1,4 +1,4 @@
-<!-- $PostgreSQL: pgsql/doc/src/sgml/libpq.sgml,v 1.208 2006/05/06 16:25:11 momjian Exp $ -->
+<!-- $PostgreSQL: pgsql/doc/src/sgml/libpq.sgml,v 1.209 2006/05/17 21:50:54 momjian Exp $ -->
 
  <chapter id="libpq">
   <title><application>libpq</application> - C Library</title>
@@ -4000,9 +4000,9 @@ current connection parameters will be used.  (Therefore, put more-specific
 entries first when you are using wildcards.)
 If an entry needs to contain <literal>:</literal> or
 <literal>\</literal>, escape this character with <literal>\</literal>.
-A hostname of <literal>localhost</> matches both <literal>host</> (TCP)
-and <literal>local</> (Unix domain socket) connections coming from the
-local machine.
+A hostname of <literal>localhost</> matches both TCP <literal>host</> (hostname <literal>localhost</>)
+and Unix domain socket <literal>local</> (<literal>pghost</> empty or the default socket directory)
+connections coming from the local machine.
 </para>
 
 <para>
diff --git a/src/interfaces/libpq/fe-connect.c b/src/interfaces/libpq/fe-connect.c
index 98d834b595..45dae72728 100644
--- a/src/interfaces/libpq/fe-connect.c
+++ b/src/interfaces/libpq/fe-connect.c
@@ -8,7 +8,7 @@
  *
  *
  * IDENTIFICATION
- *	  $PostgreSQL: pgsql/src/interfaces/libpq/fe-connect.c,v 1.328 2006/03/14 22:48:23 tgl Exp $
+ *	  $PostgreSQL: pgsql/src/interfaces/libpq/fe-connect.c,v 1.329 2006/05/17 21:50:54 momjian Exp $
  *
  *-------------------------------------------------------------------------
  */
@@ -3106,9 +3106,24 @@ PasswordFromFile(char *hostname, char *port, char *dbname, char *username)
 	if (username == NULL || strlen(username) == 0)
 		return NULL;
 
+	/* 'localhost' matches pghost of '' or the default socket directory */
 	if (hostname == NULL)
 		hostname = DefaultHost;
+	else if (is_absolute_path(hostname))
+	{
+		char		canon_host[MAXPGPATH];
+		char		canon_def_socket[MAXPGPATH];
 
+		StrNCpy(canon_host, hostname, MAXPGPATH);
+		StrNCpy(canon_def_socket, DEFAULT_PGSOCKET_DIR, MAXPGPATH);
+
+		canonicalize_path(canon_host);
+		canonicalize_path(canon_def_socket);
+
+		if (strcmp(canon_host, canon_def_socket) == 0)
+			hostname = DefaultHost;
+	}
+	
 	if (port == NULL)
 		port = DEF_PGPORT_STR;