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TORONTO (Reuters) - Canada's trade surplus fell sharply and unexpectedly in March due to a drop in prices for energy exports, while new home prices continued their steady rise.
Statistics Canada said on Wednesday the trade surplus shrank to C$254 million ($249 million) in March from C$1.15 billion in February. Analysts surveyed by Reuters had expected the surplus to rise slightly to C$1.55 billion, forecasting modest gains in both exports and imports.
Canada's trade surplus had been larger than expected in both January and February.
Statscan also said on Wednesday that the price of new homes in Canada edged up 0.3 percent in March, matching expectations, following a 0.1 percent increase in February.
The rise continued an upward trend that began in July 2009, and is in line with other recent housing data, including a 1.3 percent rise in April housing starts to more than 200,000 units.
Analysts said trade's diminished contribution to overall first-quarter economic growth is unlikely to derail expectations that the Bank of Canada will raise interest rates next month to cool the economy down a bit.
"The recovery's growth momentum and supercharged increase in employment in April sets the stage for the Bank of Canada to temper the current highly stimulative level of monetary policy support with the first move likely to be announced at the June 1 fixed action date," said Dawn Desjardins, assistant chief economist at Royal Bank of Canada.
The Canadian dollar pared gains following the data, while bonds were relatively steady in negative territory. The market view of the probability of an interest rate increase in June, as measured by yields on overnight index swaps, dipped slightly and was sitting near a 50/50 chance after the trade figures were released.
The Bank of Canada took a first step toward tightening monetary policy last month by ending its commitment to keep rates at a rock-bottom 0.25 percent until the end of June.
After six months of gains, exports declined 0.7 percent in March to C$33.53 billion, largely because of lower prices for crude oil and natural gas. Machinery and equipment exports also fell.
The value of imports jumped 2 percent to C$33.28 billion.
Economists were encouraged by the contribution of non-energy groups to exports as well as by rising volumes in both imports and exports.
"Outside of energy the picture is stronger," said Jonathan Basile, vice president of economics at Credit Suisse. "Non-energy exports rose 1.3 percent, the fourth straight gain and the eighth rise in the last 10 months. The import improvement was broad based, a reflection of the strength of the domestic economy."
Housing has been a particularly buoyant sector of the Canadian economy even during the recession. Observers continue to forecast a shift to a more balanced market after the spring, while the Bank of Canada expects housing investment to "weaken markedly" for the remainder of the year and well into 2011.
Posted mortgage rates increased several times in the past month at Canadian banks, though a few banks pared rates this past week after government bond yields fell in the wake of the Europe debt crisis.
Reporting by Ka Yan Ng; editing by Peter Galloway