OTTAWA, Dec 23 (Reuters) - The Canadian economy stalled in October, while retail sales rose less than expected, the latest signs that the country was struggling to regain momentum shortly after emerging from a mild recession.
The data released on Wednesday raised the possibility growth in the fourth quarter could fall short of the Bank of Canada's expectations and prompt another interest rate cut in the new year.
Gross domestic product was unchanged in October, Statistics Canada said, missing forecasts for a gain of 0.2 percent following September's 0.5 percent decline.
Canada was in a mild recession in the first half of 2015, hit by the shock of cheaper oil, a major export. Although growth resumed in the third quarter, the final quarter has had a weak start.
Activity in the oil and gas extraction sector rebounded in October from a sharp drop due to production difficulties and shutdowns. That was offset by a decline in manufacturing, as well as a drop in the utilities sector as parts of the country experienced unusually warm weather.
The Bank of Canada cut rates twice this year to bolster the economy. It sees the economy growing at a 1.5 percent rate in the fourth quarter. Economists said that is now looking too optimistic.
"The final quarter of the year is looking rather dismal for the Canadian economy," said David Tulk, chief Canada macro strategist at TD Securities.
"The wider backdrop of falling oil prices and renewed caution among businesses investing in the oil sands suggests the risk of an extended slowdown heading into Q1 remains significant," he said, adding that the chance of a rate cut in the first quarter "has grown appreciably."
For now, the central bank is widely seen holding rates when it meets in January, with markets pricing a 15 percent likelihood it will cut rates to 0.25 percent.
The Canadian dollar hit a session low against the greenback immediately following the data but then firmed as oil prices climbed.
Separate retail sales figures also disappointed, with sales edging up 0.1 percent, missing forecasts for a 0.4 percent gain. Volumes fell 0.3 percent.
A decline at food and alcohol stores tempered increased purchases of motor vehicles and clothing.
Reporting by Leah Schnurr; Editing by W Simon and Meredith Mazzilli