* C$ advances to 98.53 U.S. cents
* Bonds higher after Fed rate decision
* Manufacturing, productivity data firmer than expected
* More to strong C$ than commodity prices - Flaherty
(Updates with Fed rate decision, analyst comment)
TORONTO, March 16 (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
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. [ID:nN16251615]
"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
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. [ID:nN16248351] [ID:nLDE62F1LZ]
Canadian bond prices were mildly firmer on Tuesday after
the Fed repeated it plans to keep interest rates low for an
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
(Editing by Rob Wilson)