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TORONTO (Reuters) - Merger and acquisition activity edged higher in Canada in the third quarter as a wave of deal-making by pension funds and banks made up for a slowdown in the powerful mining sector, according to a report released on Friday.
Deal volume in the July-September period rose by 8 percent over the third quarter last year, and deal values climbed 1 percent, according to a quarterly report by PwC, a global consultancy that tracks M&A activity.
"A high level of activity by Canadian pension fund deal-making during Q3 2011 sheltered a broader Canadian market downturn," the consultancy said.
Canadian pension funds, either as leads, co-leads or part of buyer/seller consortiums, were involved in deals worth more than $15 billion, PwC said, highlighting a trend of foreign acquisitions by Canadian institutions.
Other notable deals in the quarter included the $6.3 billion acquisition of U.S.-based medical device maker Kinetic Concepts Inc by a consortium including the Canada Pension Plan Investment Board (CPPIB), PSP Investments and Apax Partners.
Also in the quarter Bank of Nova Scotia (BNS.TO) announced the acquisition of a 19.99 percent stake in China-based Bank of Guangzhou Co., Ltd, for about C$719 million.
Scotiabank, Canada's third-largest lender, is eager to expand its footprint in China, where foreign banks are limited to 20 percent stakes in no more than two Chinese banks.
Scotiabank also holds a 14.8 percent interest in Bank of Xi'an, and will increase that stake to 18.1 percent, pending regulatory approval.
The commodities sector continued to dominate Canadian M&A, with 42 percent of all transactions done, down from 46 percent in the prior quarter.
Even so, deals in the traditionally strong mining sector shrank in the quarter as questions surfaced about the strength of demand from China.
An absence of "mega deals" in base metals and ores drove down quarter-over-quarter deal values in the materials sector by close to 66 percent, PwC said.
"While most miners remain bullish about the long-term fundamentals of the mining sector, recent uncertainties about emerging market resource demand have prompted miners at the upper end of the market too put acquisitions plans on hold," the consultancy wrote.
($1= $0.99 Canadian)
Reporting by Pav Jordan; Editing by Frank McGurty