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UPDATE 1-Bank of Canada sees rising capacity pressure among firms

(Adds detail from the report)

OTTAWA, June 30 (Reuters) - Canadian companies are more optimistic about future sales and exports, while improving demand is driving capacity pressures that should boost investment and hiring, the Bank of Canada said on Friday.

Firms expect sales growth to improve further after a pickup in the last 12 months, driven by strength in services and a bounceback in the commodity sector, the central bank said in its quarterly business outlook survey.

"Respondents signaled that improving demand was the main factor pushing them closer to capacity, and labor-related constraints have become more prevalent," the bank said.

The indicator of hiring intentions reached a record high and some firms believe competition for labor is starting to feed into wages, the bank said.

While some firms mentioned emerging price pressures from inputs and companies want to pass on higher costs to rebuild margins as demand recovers, competition continues to restrain their ability to raise prices and inflation expectations edged down, remaining at the lower end of the bank's 1 to 3 percent inflation control range.

Overall, the survey suggested a continued recovery in business sentiment after two years of weakness, and it will likely feed into expectations that the Bank of Canada will begin raising interest rates, possibly as early as next month.

Indications that domestic demand will improve further buoyed business activity, and "positive business prospects" are increasingly widespread across regions and sectors, the bank said.

Businesses expect activity to recover in energy-related sectors and to remain high in housing. In addition, many respondents see benefits from the low-level of the Canadian dollar for domestic sales because it promotes tourism and dampens competition from U.S. firms, the bank said.

Many firms said sustained U.S. demand boosted expectations for export growth from the modest level recorded in the previous survey, though uncertainty about future trade-related negotiations and U.S. protectionism continues to cloud the outlook.

The survey of about 100 firms showed capacity pressures and labor shortages are more intense compared with the last survey in April.

"Similarly, for the first time in more than two years, results indicate that, in all regions, it has become more difficult, on balance, to find labor," the bank said in a separate box illustrating capacity pressures.

"Businesses facing constraints tend to plan on increasing investment and employment in response. Some firms also judge that efforts to retain and compete for labor are starting to feed into wages." (Reporting by Andrea Hopkins and Leah Schnurr; Editing by Bernard Orr)