WRAPUP 1-Canada's trade deficit biggest in a year in December
* Trade deficit C$1.66 billion in December
* Ivey Purchasing Managers Index recovers to 56.8
* Canadian dollar bounces in choppy trade
OTTAWA/TORONTO, Feb 6 (Reuters) - Canada's trade deficit jumped to the highest level in a year in December, a government report showed on Thursday, the latest in a series of disappointing economic figures that are expected to keep the Bank of Canada from raising interest rates this year.
Separate data that showed a rebound in the pace of purchasing activity in January offset some of the initial gloom generated by the trade report and helped the Canadian dollar regain some ground after an early fall.
The trade deficit widened to C$1.66 billion ($1.49 billion), data from Statistics Canada showed, with the value of imports hitting a record high despite a drop in volumes.
The deficit was almost C$1 billion more than economists had expected and the biggest since November 2012. Last November's gap was also revised sharply higher to C$1.53 billion from an originally reported C$940 million.
"No doubt about it, the fourth quarter was a setback for Canada's export sector, with trade expected to weigh on economic growth," Leslie Preston, economist at TD Bank Group, wrote in a note.
The trade sector's performance in the final quarter of last year is inconsistent with improved economic momentum in the U.S. economy and indicators of production in Canada, Preston said.
"Therefore, the fourth quarter should prove a temporary setback, and Canada's export sector is expected to be a growth driver in 2014 as stronger U.S. demand lifts exports."
Despite a big drop in the Canadian dollar over the last few months, the Bank of Canada said recently that the currency is still strong and that its strength still poses an obstacle to exports.
"The transition to more export-led growth is underway, but it has not been smooth," Preston said. "Therefore, the bank is likely to wait quite some time before removing further monetary stimulus."
Higher prices, partly due to the weaker currency, accounted for all of the 1.2 percent increase in imports to C$41.38 billion, eclipsing the previous record set in August. Import volume actually fell by 0.4 percent, while prices rose 1.6 percent. Many imports are priced in U.S. dollars, making them costlier if the Canadian dollar falls.
The climb in imports was led by crude oil, largely from Norway. A decline in exports of energy, food, and cars and car parts partly offset increased exports in most other areas.
Exports were up 0.9 percent to C$39.72 billion, with volume rising by an encouraging 0.8 percent.
Despite the export rebound in December, net trade is still set to subtract close to a percentage point from the figure for Canadian gross domestic product growth in the fourth quarter, economists at Scotiabank said.
The Canadian dollar was initially pulled lower by the trade data, but an improvement in an index gauging purchasing activity in the Canadian economy provided some relief and helped the loonie push higher against the greenback later in the day.
The seasonally adjusted Ivey Purchasing Managers Index bounced to 56.8 in January after contracting in December. While measures of deliveries and prices rose, the employment component slid in what could be a bad sign for Friday's more comprehensive unemployment report.
That release is forecast to show hiring picked up in January after the economy unexpectedly shed jobs in December.