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Canada economic growth stalls in October, dampens odds of Jan rate hike

FILE PHOTO: Workers on automated systems at the Hudson's Bay Company distribution centre in Toronto, Ontario, Canada May 29, 2017. REUTERS/Fred Thornhill/File Photo

OTTAWA (Reuters) - The Canadian economy paused in October, reinforcing expectations that growth cooled in the second half of the year and taking some steam out of bets that the central bank could raise interest rates as soon as January.

Gross domestic product was unchanged in October, Statistics Canada said on Friday, short of economists' forecasts for a gain of 0.2 percent following September's unrevised 0.2 percent increase.

The soft reading was driven by a decline in oil and gas extraction that offset gains in the wholesale trade and retail sectors.

The report lowered market odds the Bank of Canada could raise interest rates next month, with the likelihood declining to 47 percent from 50 percent ahead of Friday's figures. The Canadian dollar weakened against the greenback.

Growth in the second half of 2017 is expected to have cooled from the blistering pace set in the first half, though analysts expect the Bank of Canada to continue to tighten interest rates next year after improvements in the labor market and inflation.

"It's a modest setback for the economy," said Sal Guatieri, senior economist at BMO Capital Markets, who expects the central bank to hike next in March. Market odds on a March move were 80 percent.

Last week, Bank of Canada Governor Stephen Poloz said the central bank is increasingly confident the economy will need less stimulus over time.

Activity in goods-producing sectors of the economy declined by 0.4 percent in October, led by a 1.1 percent pullback in the mining and oil and gas extraction industry.

It was the fourth decline in the sector in five months as nonconventional oil extraction fell, partly due to a loss of capacity during maintenance. Mining also declined by 0.8 percent.

But the weakness was tempered by a 1.4 percent increase in wholesale trade, which was helped by sales of machinery and equipment.

The retail sector grew by 1.1 percent after three consecutive months of declines as consumers bought more new and used cars. Overall, the service sector grew by 0.2 percent.

Increased home sales in Ontario and British Columbia helped lift activity in the real estate sector by 0.3 percent, though construction edged down 0.1 percent due to a decline in both the residential and nonresidential segments.

(Reporting by Leah Schnurr; Editing by Phil Berlowitz and Jeffrey Benkoe)

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