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WRAPUP 2-Canadian Q3 GDP slows to annualized 1.3% after strong second quarter gain

Kelsey Johnson

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OTTAWA, Nov 29 (Reuters) - Canadian economic growth slowed to an annualized rate of 1.3% in the third quarter on lower exports, official data showed on Friday, coming slightly ahead of analysts' expectations before next week's Bank of Canada rate decision.

Friday's data matched a Bank of Canada forecast from October and the market is expecting the central bank to keep rates steady at 1.75%.

"The headlines are bang on expectations but below the surface there is plenty to be optimistic about," said Adam Button, chief currency analyst at Forexlive, noting the stronger real estate sector and higher consumer spending.

Statscan said business investment grew 2.6% in the third quarter, the fastest pace seen since the fourth quarter of 2017, while household spending accelerated to 0.4%. Housing investment rose 3.2%, the highest gain seen since the first quarter of 2012.

Meanwhile, exports fell 0.4%, while imports were flat, the agency said. Friday's data follows a stronger-than-expected performance in the previous quarter. A Reuters poll had predicted third quarter growth of 1.2%.

Canada's central bank, which has held rates steady for more than a year even as it warns the country's export-dependent economy is not immune from global trade tensions, is set to release its next interest rate decision on Dec. 4.

The Canadian dollar declined, touching 1.3290 to the U.S. greenback or 75.24 cents U.S., after the data release.

A Reuters poll released on Tuesday found a slim majority of economists now expect the overnight rate to hold through to the end of 2020.

But analysts cautioned there is a downside risk to fourth quarter growth.

Recent strikes at General Motors in the United States and an eight-day work stoppage a Canada's largest railway, Canadian National Railway Co. could "temporarily dampen growth a bit more than expected in Q4," BMO's Doug Porter said in an interview.

Gross domestic product in September grew 0.1%, Statscan said, on gains in both the services- and goods- producing sectors, matching analysts expectations as well as the 0.1% increase seen in August.

"The Bank of Canada has been concerned about spillover from weak exports and business investment into the household sector, and we're not really seeing much evidence of that," said Josh Nye, senior economist at the Royal Bank of Canada.

Statistics Canada revised its second quarter annualized figure downwards on Friday to 3.5% from 3.7% and shifted its first quarter findings higher to 0.8% from an initially reported 0.4%.

In a separate release, Statistics Canada said Canadian producer prices rose by 0.1% in October, on higher energy and petroleum prices.

(Reporting by Kelsey Johnson, additional reporting by Jeff Lewis, Allison Martell and Fergal Smith in Toronto Editing by Chizu Nomiyama and Marguerita Choy)