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The Canadian Press - ONLINE EDITION

Loonie closes higher, economy rises during fourth quarter, stalls at year end

By: Malcolm Morrison, The Canadian Press

Posted: 03/1/2013 7:46 AM | Comments: 0 | Last Modified: 03/1/2013 3:40 PM

A worker at the Royal Canadian Mint checks the quality of loonies on May 2, 2006. THE CANADIAN PRESS/AP, Marianne Helm

TORONTO - The Canadian dollar closed higher Friday at the end of a punishing week of losses amid data that showed the economy performed as expected late last year.

The loonie gained 0.4 of a cent to 97.36 cents US as Statistics Canada reported that gross domestic product grew at an annualized rate of 0.6 per cent in the fourth quarter, which matched expectations. However, GDP actually shrank in the final month of the year, dropping 0.2 per cent, which was also in line with economists' forecasts.

The dollar tumbled about three US cents during February — down 0.6 of a cent just this week — to fresh eight-month lows, in part after the U.S. currency gained ground in the wake of Italian elections last Sunday and Monday which failed to yield a clear-cut winner.

But the dollar was also punished by weak Canadian trade data.

The currency had been lower earlier in the morning as the greenback strengthened while markets considered the effects of the sequestration deadline kicking in. That's the name for automatic across the board series of government spending cuts totalling US$85 billion.

The cuts date from an agreement to raise the U.S. government debt limit in the summer of 2011. The program was not meant to be activated. Rather, lawmakers were supposed to come together before the March 1 deadline to agree on a more considered method of cutting government spending. But such an agreement seems like a long shot.

Prices for oil and copper registered sharp declines as government data showed that Chinese manufacturing activity expanded at a slower rate in February than January.

The government-sponsored version of the manufacturing Purchasing Managers’ Index came in at 50.1 for February, only marginally ahead of the 50-point threshold that signals an expansion. Economists had looked for a reading of 50.5.

On the commodity markets, the April crude contract on the New York Mercantile Exchange fell $1.37 to US$90.68 a barrel.

May copper on the Nymex fell five cents to US$3.50 a pound and April gold lost $5.80 to US$1,572.30 an ounce.

Other economic news was more positive. The Institute for Supply Management's February reading on the manufacturing sector showed stronger than expected expansion, rising to 54.2 from 53.1 in January.

And the University of Michigan's widely watched consumer sentiment index rose to a three month high of 77.3.

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