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OTTAWA (Reuters) - A rebound in car sales lifted manufacturers' sales in January, but economists warned that the sector remains under considerable stress as U.S. demand for exports implodes.
Statistics Canada said on Monday that factory shipments rose by 1.3 percent to C$49.3 billion ($49.8 billion) after sliding 3.7 percent in December to a three-year low.
Analysts in a Reuters poll had expected a gain in January factory sales of just 0.9 percent.
With the exception of December, though, factory sales were still at their lowest since March 2005, as manufacturers struggled to compete amid a strong Canadian dollar, higher energy prices and the U.S. downturn.
"Following the less than stellar performance last year, we expect the Canadian manufacturing sector to continue to struggle in the face of these ominous headwinds," Millan Mulraine, economics strategist at TD Securities, said in a note.
The data had little impact on the Canadian dollar as markets digested the news of emergency moves by the U.S. Federal Reserve on Sunday and the purchase of stricken Bear Stearns by JPMorgan Chase & Co.
Exports have been the softest spot in the Canadian economy, contrasting with strong domestic spending to drag down fourth-quarter economic growth to 0.8 percent on an annualized basis from 3 percent in the previous quarter.
To shield the economy from the U.S. housing meltdown and shaky credit markets, the Bank of Canada has cut its key overnight rate by a full percentage point since December to 3.5 percent. More cuts are expected in April.
Excluding auto sales, which shot up 4.5 percent, factory sales gained 1.1 percent in January. Auto sales plummeted 25.6 percent in December to the lowest level in almost a decade.
"A number of factors, including a softening U.S. export market, retooling of assembly lines for new models and inventory control measures at the retail level, continued to affect several of the key producers," Statscan said.
In a separate release on Monday, Statscan said final sales of new motor vehicles rose 8.2 percent in January from December, the strongest monthly growth in 2 1/2 years.
Manufacturers' inventories grew 1.4 percent as petroleum product producers and motor vehicle plants replenished their stock. The inventory-to-sales ratio was unchanged at 1.34. Demand from the aerospace industry pushed new orders up 2.9 percent and unfilled orders up 3.6 percent in the month.
The central provinces of Ontario and Quebec, home to Canada's manufacturing base, were behind the partial recovery in January. The two provinces were also to blame for the dismal performance in December and are expected to remain volatile.
Statscan said both provinces had seen as many positive numbers as negative ones over the past 12 months.
($1 = $0.99 Canadian)
Reporting by Louise Egan; editing by Janet Guttsman