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UPDATE 1-Canada economy posts sluggish Q1 growth, but March shows signs of strength

strength@ (Adds details of release, background)

OTTAWA, May 31 (Reuters) - The Canadian economy expanded at an annualized rate of just 0.4% in the first quarter, slightly worse than expected, although monthly growth in March was the highest in almost a year, Statistics Canada said on Friday.

Analysts in a Reuters poll had predicted annualized first quarter growth of 0.7% as the economy battles low oil prices and global trade tensions. The Bank of Canada is not predicting a recovery until the second half of 2019.

Although household spending and business investment in machinery and equipment grew in the first quarter from the fourth quarter of 2018, this was moderated by a decline in exports and investment in housing.

Gross domestic product in March grew by 0.5% from February - the largest increase since the 0.5% gain seen in May 2018 - on widespread improvement across both the goods- and service-producing sectors.

The Bank of Canada forecast on April 24 that annualized first quarter GDP would be 0.3%. The central bank held interest rates steady as expected on Wednesday, saying there was evidence that the economic slowdown was temporary.

(Reporting by David Ljunggren Editing by Chizu Nomiyama)

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