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UPDATE 1-Canadian July GDP jumps as goods sector revives

(Adds market reaction, industrial prices)

By Gilbert Le Gras

OTTAWA, Sept 30 (Reuters) - Canada's economy grew 0.6 percent in July, the largest monthly gain since April 2002, after five months of stagnation as the goods-producing sector staged an about-face, Statistics Canada said on Tuesday.

Manufacturers led the way, with the strongest gain in 12 months, followed by mining and real estate.

"The transportation equipment sector was the largest contributor, thanks to the bounce-back in the production of cars and trucks after a weak June," it added.

"The bounce can be seen as in part corrective from a weak second quarter when GDP declined marginally in the quarter, in part due to special factors such as SARS," said David Sloan, analyst at 4Cast in New York City.

A Reuters poll of analysts forecast, on average, growth of 0.3 percent in July, up from June's 0.1 percent increase.

"It's definitely positive for Canada. GDP was better than expectations and it's confirming growth, and dollar Canada should come up," said Jack Spitz, director of foreign exchange at National Bank of Canada.

Canada's services sector -- accounting for about two-thirds of its C$1 trillion economy -- has either been flat or slightly up over the prior five months. It expanded 0.4 percent in July.

The goods-producing sector, however, had consistently contracted since February until the 1.0 percent expansion in July -- compared to a 0.6 fall in June, Statscan said.

Canadian industrial product prices rose 0.3 percent in August from July due to a jump in petroleum and coal prices but dropped from 12 months ago because of the Canadian dollar's surge, Statcan said in a separate report on Tuesday.

A Reuters poll of analysts had forecast industrial prices in August would rise 0.6 percent. Statscan said the price of petroleum and coal products in August rose 5.2 percent from July and was up 4.4 percent from 12 months earlier.

Excluding the effect of the U.S. dollar, which has been falling against most major currencies in 2003, industrial prices would have risen 0.4 percent on a monthly basis and increased 1.1 percent year-on-year, instead of fall 2.0 percent, it said.

Many commodities are priced in U.S. dollars. On an annual basis, August represented the fifth consecutive month of declines in industrial product prices.

The raw materials price index rose 1.1 percent in August from July, compared to expectations of a 0.5 percent rise, as the cost of mineral fuels rose 2.1 percent on a monthly basis.

(Additional reporting by Cameron French in Toronto)

($1=$1.35 Canadian)