WRAPUP 1-Growth resumes in Canada but U.S. woes threaten

* GDP grows 0.3 pct after stalling in July

* Bank of Canada rates seen on hold into 2011

* Finance Minister warns of U.S. housing drag

* Sept producer prices rise 0.2 pct, raw materials fall

By Louise Egan

OTTAWA, Oct 29 (BestGrowthStock) – Canada’s economic recovery
picked up speed again in August after stalling in July, but
third-quarter growth is still on track to be the weakest since
the rebound began, according to figures released on Friday.

Statistics Canada said gross domestic product climbed 0.3
percent in August, bolstered by wholesale trade, manufacturing
and oil and gas extraction. GDP shrank 0.1 percent in July, the
first contraction in a year.

The August figure matched the forecasts from a Reuters
poll, and supported market expectations that the Bank of Canada
will keep its key interest rate on hold through early 2011
after three successive hikes earlier this year.

Canadian Finance Minister Jim Flaherty welcomed the August
comeback, but said U.S. housing woes remain a threat, and
economists also blamed a weak U.S. economy for the slowdown.

“At the end of the day, the Canadian economy just can’t
fight the gravitational pull of sluggish U.S. activity. End of
story,” said Doug Porter, deputy chief economist at BMO Capital
Markets.

Canada ships three-quarters of its exports to the United
States and its autos and timber industries are particularly
vulnerable to swings in demand from the next-door giant.

U.S. growth rose an annualized 2 percent in the third
quarter, not enough to chip away at high unemployment or change
perceptions of more monetary easing from the Federal Reserve
next week, U.S. data showed. [ID:nN28207235]

IMF WARNING

The International Monetary Fund had warned on Thursday that
risks to Canada’s economic outlook have increased and include
housing market weakness in the United States. [ID:nTOE002171]

It said the government and Bank of Canada should be ready
to prime the economic pump if needed, but agreed that current
plans to wind down the stimulus program were appropriate now.

The Bank of Canada focuses on inflation rather than growth
to set its monetary policy, and there was mixed news on that
front on Friday.

Statscan said high demand for precious metals offset the
dampening effect of a strong Canadian dollar on motor vehicle
exports to lift producer prices in September by 0.2 percent.

But raw materials prices unexpectedly fell 0.4 percent in
the month, dragged down by lower crude oil prices.

The Canadian dollar (CAD=D4: ) firmed to a session high of
C$1.0170 to the U.S. dollar, or 98.33 U.S. cents after the
date. It later retreated somewhat, but stayed above Thursday’s
close of C$1.0215 to the U.S. dollar, or 97.90 U.S. cents.

The Bank of Canada last week cut its third-quarter
projection to an annualized 1.6 percent, from 2.8 percent and
economists say that even that may be optimistic.

“This potential forecast miss on third-quarter GDP is an
added reason for why a solid August print doesn’t alter us from
our expectation that the BoC is on hold straight to the end of
third-quarter 2011,” said Scotia Capital economists Derek Holt
and Gorica Djeric.

The central bank hiked rates to 1 percent from
June-September before pausing in October. Canada’s primary
securities dealers unanimously predict the bank will hold rates
unchanged at its next decision on Dec. 7. [ID:nN19139203]
(Additional reporting by Howaida Sorour; editing by Janet
Guttsman)

WRAPUP 1-Growth resumes in Canada but U.S. woes threaten