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TORONTO (Reuters) - The Canadian dollar rose to its highest level since July 2008 on Tuesday afternoon after the U.S. Federal Reserve held benchmark interest rates near zero, as expected, and renewed its promise to keep them exceptionally low for an extended period.
Building on momentum from firmer oil and equities prices and stronger than expected domestic economic data, the Canadian dollar rose as high as C$1.0135 to the U.S. dollar, or 98.67 U.S. cents.
That rise marked the resumption of currency's upward march after pausing on Monday as investors took a break after an 11-day stretch of gains.
At 3:15 p.m. (1915 GMT), the Canadian dollar was slightly off its session highs, at C$1.0149 to the U.S. dollar, or 98.53 U.S. cents, up from Monday's close at C$1.0197 to the U.S. dollar, or 98.07 U.S. cents.
The outcome of the U.S. interest rate decision was widely expected, though the U.S. central bank also pointed to increased momentum in the economy's recovery.
"I'd say we've had a minimal reaction to the Fed release. There was very little changes from the FOMC," said Camilla Sutton, currency strategist at Scotia Capital.
"It was a risk-on day where the U.S. dollar was generally weaker across the board and most risk assets are doing well. If we see that continue I think that just pushes the Canadian dollar one step closer to parity."
The day's domestic data also provided more proof the Canadian economy is moving to a surer footing as figures showed January manufacturing sales higher than expected and labor productivity rising for the first time in more than a year.
"Certainly it's pointing to solid growth being sustained," said Paul Ferley, assistant chief economist at Royal Bank of Canada. "At the moment, we're still of the view that we'll see some moderation from the 5 percent (GDP) gain in the fourth quarter."
He said the data was consistent with his forecast that first-quarter growth would be just under 4 percent, although it could be higher if statistics continue to come in very firm.
Earlier, Finance Minister Jim Flaherty said the upward pressure on the Canadian dollar was coming from Canada's strong fundamentals and a softer greenback, not just rising commodity prices.
Canadian bond prices were mildly firmer on Tuesday after the Fed repeated it plans to keep interest rates low for an extended period.
The two-year government bond was up 2 Canadian cents to C$99.90 to yield 1.552 percent, while the 10-year bond gained 35 Canadian cents to C$102.36 to yield 3.448 percent.
Editing by Rob Wilson