UPDATE 2-Sluggish Canada growth mutes talk of rate hikes

* Bank of Canada seen staying put on rates

* GDP grows 0.2 percent in October after September decline

* Mining, oil and gas extraction behind increase
(Adds details, quotes, dollar reaction)

By David Ljunggren

OTTAWA, Dec 23 (BestGrowthStock) – Canada’s economy grew less than
expected in October, prompting several analysts to predict that
the Bank of Canada would be in no rush to raise interest rates
any time soon.

Gross domestic product by industry grew by 0.2 percent from
September, Statistics Canada said on Thursday. Analysts polled
by Reuters had expected an 0.3 percent increase after a 0.1
percent dip in September.

Earlier this month, the Bank of Canada held its benchmark
rate steady at 1 percent for the second straight time, after
raising rates three times earlier this year, and said any
future hikes would have to be considered carefully.

Recent data show the Canadian economy has slowed down
markedly since the beginning of the year and will do well to
reach the central bank’s forecast of 2.6 percent annualized
growth in the fourth quarter.

“No policy action is likely until the bank is convinced
that the economy is growing at a stronger clip on a sustained
basis … we expect it will likely take until the second
quarter of 2011 before the bank resumes raising its policy
rate,” said Dawn Desjardins of RBC Economics.

Oil and gas extraction in October rose 1.3 percent from
September, in part due to better weather, while mining was up
2.7 percent due to the end of labor disputes at copper, nickel,
lead and zinc mines.

The biggest drag was the long-suffering manufacturing
sector — hit by a strong Canadian dollar and weak U.S. demand
— which decreased by 0.6 percent. The construction sector was
also down 0.5 percent on slack residential building demand.

“The details are worse than the headline miss as growth was
barely evident on a sector by sector basis. That supports our
view that the Bank of Canada is on an extended pause (on
interest rates),” said Derek Holt and Gorica Djeric of Scotia
Capital Economics.

The Canadian dollar (CAD=D4: ) firmed slightly on the data
and by 10:30 am (1530 GMT) was at C$1.0118 to the U.S. dollar,
or 98.83 U.S. cents, up from Wednesday’s North American session
close at C$1.0142 to the U.S. dollar, or 98.60 U.S. cents.

Based on a Reuters calculation, the market is pricing in an
91.64 percent chance the Bank of Canada will keep rates on hold
at its next policy announcement date on Jan. 18 and will not
move until the end of May (BOCWATCH: )

The International Monetary Fund said on Wednesday that
there were big risks to Canada’s economy as the recovery loses
steam, citing the patchy U.S. recovery and sovereign debt
concerns in Europe [ID:nN22295844].

“The modest rebound in October shows that the Canadian
economy is now struggling to generate any serious momentum
after a flashy start to the recovery,” said Doug Porter of BMO
Capital Markets.

“For the expansion to move to the next level, we need the
U.S. economy to kick into a higher gear — thankfully, that
looks to be precisely the case,” he added, citing stimulative
U.S. fiscal policies and pent-up demand south of the border.
(Reporting by David Ljunggren; editing by Peter Galloway)

UPDATE 2-Sluggish Canada growth mutes talk of rate hikes