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By Gilbert Le Gras
OTTAWA, March 31 (Reuters) - Canada's economy contracted 0.1 percent in January from December as consumers bought fewer homes and cars, Statistics Canada said on Wednesday, shattering analysts' growth expectations and piling up reasons for an April rate cut.
"Much of the strength in the economy the last couple of years had been attributable to a consumer with an insatiable appetite for new homes and cars. This was not the case in January," Statscan said.
The Canadian dollar fell to C$1.3100 to the U.S. dollar, or 76.33 U.S. cents, after the GDP figures were issued, from C$1.3066, or 76.53 U.S. cents. Bonds rose on renewed expectations of an interest rate cut by the Bank of Canada, perhaps as early as April 13.
"The silence we hear this morning is from the crowd that felt a strong retail sales report (last) Friday would eliminate the need for additional Bank of Canada easing in the second quarter," Scotia Capital's Andrew Pyle said.
Analysts had forecast, on average, gross domestic product growth of 0.2 percent in January from December after surprisingly strong January retail sales which were up 1.6 percent from December.
Statscan did not revise December's GDP monthly growth of 0.5 percent. January's contraction was the first drop in GDP since August's power-outage induced a 0.7 percent fall.
The goods-producing sector of the economy shrank 0.4 percent in January from December while the services sector, which is more than twice as large in value, was unchanged from December, Statscan said.
The deepest pockets of weakness were in manufacturing -- owing largely to "disappointing" car sales -- construction, mining, oil and gas extraction, farming, wholesale trade and the transportation sector, the government agency said.
PRICES ON THE RISE
Canadian industrial product prices jumped 1.8 percent, triple what analysts expected, in February from January because of a rebound in the U.S. dollar last month and rising commodity prices, Statscan said.
Analysts had forecast, on average, that industrial prices would rise 0.6 percent in February from January. Statscan revised January's industrial product price index up to 0.6 percent from a gain of 0.4 percent.
Excluding the effect of the U.S. dollar's rise against the Canadian dollar in January, the industrial prices would have risen 1.1 percent, the government agency said.
Vehicle prices shot up 1.8 percent from January, mainly due to the foreign exchange effect, while strong demand boosted lumber prices 6.2 percent from January. The values of copper, nickel, aluminum, lead, petroleum, coal, pulp and paper rose.
Raw materials prices were up 3.4 percent in February from January -- well above the 2.0 percent increase analysts expected -- and mineral fuels were responsible for about half of the monthly rise, Statscan said.
($1=$1.31 Canadian)
(Additional reporting by Ka Yan Ng in Toronto)