WRAPUP 2-Canada trade surplus, housing data signal recovery

* January trade surplus bigger than expected

* New home prices post first yr/yr rise since Dec 2008

* Q4 capacity use sees biggest leap in 3 years

* Data suggests quick recovery, possible rate hikes

* PM Harper says export markets still uncertain
(Adds prime minister’s comments)

By Louise Egan

OTTAWA, March 11 (BestGrowthStock) – Canada’s economy showed more
signs of recovery in January as the trade surplus and new home
prices continued to climb, adding to strong fourth-quarter data
to suggest higher interest rates could be around the corner.

Statistics Canada said on Thursday the trade surplus grew
more than expected in January to C$799 million ($776 million)
as higher prices for commodities such as gold boosted exports,
while imports fell. Markets had expected a C$100 million
surplus.

New home prices climbed 0.4 percent in the month and 0.1
percent from January 2009, the first 12-month increase in over
a year.

In another report on the fourth quarter, Statscan said
industries ramped up their production to 70.9 percent of
capacity from 68.7 percent in the previous quarter, the first
substantial jump in three years.

Hawkish economists pounced on the housing and capacity use
reports as evidence the economy is heating up more quickly than
policymakers expected and said inflation will soon become a
problem.

There is a high risk the Bank of Canada will be forced to
hike rates in the second quarter, abandoning its conditional
commitment to keep rates on hold at 0.25 percent until July,
said Scotia Capital economists Derek Holt and Karen Cordes
Woods.

“These two reports support our view that Canada has
transitioned away from an emergency rate setting with low, not
near-zero rates required and with BoC hikes lying just around
the corner,” the economists wrote in a note.

The central bank’s last statement earlier this month hinted
that the period of rock-bottom rates was nearing an end. It’s
next rate decision is April 20.

The Canadian dollar fell against the U.S. greenback on
Thursday as a drop in the U.S. trade deficit outweighed the
domestic data.

At 9:15 a.m. (1415 GMT), the Canadian dollar was at
C$1.0306 to the U.S. dollar, or 97.03 U.S. cents, down from
Wednesday’s close at C$1.0259 to the U.S. dollar, or 97.48 U.S.
cents. It later recovered a bit.

EXPORTS SLUGGISH

Not all the details were upbeat, however. Despite the
largest trade surplus since March 2009, export growth slowed to
0.5 percent as volumes fell, partially offsetting higher prices
for gold and other metals and alloys.

Prime Minister Stephen Harper noted that demand for
Canadian goods has not fully recovered.

“Today, we are emerging from the global recession. Our
domestic demand is strong. But our export markets remain
uncertain and so we are recovering slowly, though with a
growing sense of optimism,” he told Parliament.

After four months of hefty gains in trading activity, a
pause in the ascent is not that unusual, said Eric Lascelles,
chief economics and rates strategist at TD Securities.

“Nonetheless, the level of trade is less than one-third of
its way back to its pre-crunch peak, which argues that the
recovery should hardly be stalling out just yet. This merits
close examination going forward,” he said.

Canada’s trade surplus with the United States narrowed
slightly to C$4.1 billion from C$4.2 billion in December due to
lower auto sales.

Canada will not likely return to the big trade surpluses of
the past this year, analysts said.

“Sluggish U.S. demand and a strong Canadian dollar will
keep a lid on export growth. This theme is likely to persist
through 2010, as Canada’s domestic economy outperforms the
U.S., likely keeping the merchandise trade account near
balance,” said Benjamin Reitzes, economist at BMO Capital
Markets.
Investing Analysis

($1=$1.03 Canadian)
(Additional reporting by David Ljunggren; editing by Peter
Galloway)

WRAPUP 2-Canada trade surplus, housing data signal recovery