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* Growth hits 2.9 percent, highest since first quarter
* Statistics Canada revises Q1 and Q2 growth figures up
* Bank of Canada had expressed fears over weaker growth
By David Ljunggren
OTTAWA, Feb 28 (Reuters) - Canada's economy grew more than expected in the fourth quarter of 2013, a development that could help kill off any remaining market chatter that the Bank of Canada might cut interest rates to boost growth.
Statistics Canada said on Friday that annualized fourth quarter growth was 2.9 percent, more than the 2.5 percent markets had been anticipating.
Statscan also sharply raised its growth figures for the first two quarters of 2013, indicating the economy had done better than the Bank of Canada realized.
The central bank has kept its key interest rate at a near record low of 1.0 percent since September 2010 and says it will not move until the economy picks up speed and weak inflation rises. Some analysts say the bank could even cut rates.
"The revisions certainly change the tone to how the economy performed in the first half of 2013 ... the economy had better momentum than expected through 2013," said Doug Porter, chief economist at BMO Capital Markets.
"I would say at the margin it slightly further reduces the already remote possibility the Bank of Canada would consider cutting interest rates. I don't think it necessarily advances the case for rate hikes," he told Reuters.
Manufacturing, retail and wholesale trade and construction all posted notable increases in the fourth quarter. Oil and gas extraction edged up while transportation, mining and accommodation and food services all fell.
The Bank of Canada had forecast last month that fourth quarter annualized growth would be 2.5 percent.
Statistics Canada raised its figures for the first two quarters to reflect the fact that exports of crude oil and crops were greater than it had initially estimated.
Statscan now says first quarter growth was 2.9 percent compared to an initial 2.3 percent while second quarter growth was 2.2 percent rather than 1.6 percent.
The data pushed the Canadian dollar up against the U.S. dollar. By 9:45 am (1445 GMT) the Canadian dollar was at C$1.1092 to the greenback, or 90.16 U.S. cents, stronger than Thursday's close of C$1.1136, or 89.80 U.S. cents.
For 2013 as a whole, real gross domestic product grew by 2.0 percent from 2012 after increasing by 1.7 percent in 2012.
"A bare 2.0 percent is well below what Canada needs to meaningfully reduce unemployment," said Erin Weir, an economist at the United Steelworkers union.
Gross domestic product in December fell 0.5 percent from November, the largest month-on-month drop since the 0.7 percent seen in March 2009. Traders had expected a 0.3 percent drop, in part because of unusually cold weather that month.
Retail sales, jobs, manufacturing and trade data all showed weakness during the month.
Bank of Canada Governor Stephen Poloz said on Saturday more data was needed before concluding if the weakness was weather-related or if it reflected an underlying trend.
The bank has an interest rate announcement scheduled for March 5. The next move is still expected to be a hike, but forecasters have pushed back their target for a tightening to the third quarter of 2015, a Reuters poll found on Thursday
"We think they are running out of room to sound incrementally more dovish," said David Tulk, chief Canada macro strategist at TD Securities.
Canada's annual inflation rate rose to 1.5 percent in January from 1.2 percent in December and was the highest reading since June 2012.
The 2.9 percent growth in the first and fourth quarters was the highest since the 6.2 percent recorded in the third quarter of 2011, when the economy was recovering from the after-effects of a tsunami and earthquake in Japan as well as forest fires in western Canada.