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Canadian dollar dips, economic growth rebounds strongly from weak first quarter

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TORONTO - The Canadian dollar closed lower Friday amid data that showed the economy grew more than expected in the second quarter.

The loonie was down 0.22 of a cent at 91.97 cents US as Statistics Canada reported gross domestic product ran up at an annual rate of 3.1 per cent, higher than the 2.7 per cent read that economists had expected.

First-quarter GDP growth, which was affected by a severe winter, was revised down to 0.9 per cent compared with an earlier reading of 1.2 per cent.

On a monthly basis, GDP climbed 0.3 per cent in June versus the 0.2 per cent rise that had been forecast, the highest quarterly gain since the third quarter of 2011.

The American currency gained strength during the morning amid another sign of economic weakness in Europe. Inflation in the 18 countries that use the euro sank to 0.3 per cent in August, down from 0.4 per cent in July and is the lowest since October 2009.

Inflation has been so low for so long that it has raised fears of deflation, a crippling downward price spiral that comes about when people hold off buying things because they think prices will fall further.

In the U.S., consumer spending remained lacklustre in July as auto sales slipped from eight-year highs and retail sales stalled. Spending dropped 0.1 per cent, against the gain of 0.3 per cent that generally had been expected.

Other data showed a sharp uptick in manufacturing activity in the American Midwest. The Chicago Purchasing Managers Index surged to 64.3 in August from 56.5 in July.

Investors also watched the Ukraine conflict for signs of further escalation after the country’s president said that Russian forces had entered the southeastern part of the country, which had largely escaped earlier fighting between Ukraine forces and pro-Russian militias.

European Union foreign ministers met Friday to weigh adopting a tougher stance on the Ukraine crisis amid increasing calls to beef up economic sanctions against Russia.

The Canadian dollar has had a strong week, up about six tenths of a cent with the currency benefiting from a deal that will see American fast food giant Burger King buy Canadian coffee and doughnut chain Tim Hortons for $12.5 billion. The loonie has been pushed higher in the past by such big corporate takeovers as foreign buyers acquiring a Canadian company need Canadian dollars to close the deal, boosting demand for the loonie on financial markets.

On the commodity markets, October crude in New York gained $1.41 to US$95.96 a barrel.

December gold backed off $3 to US$1,287.40 an ounce while December copper gained one cent to US$3.16 a pound.

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