By Chris Fournier and Mary Childs June 1 (Bloomberg) -- Canada’s dollar fell as the nation’s central bank said any interest rate increases after today’s move will be “weighed carefully” against growth in Canada and elsewhere, sowing uncertainty over the pace of further raises. The currency, known as the loonie, declined against 13 of its 16 most-traded counterparts as stocks slid on BP Plc’s failure to halt the biggest oil spill in U.S. history and a report that said Lebanon fired on Israeli warplanes. The Bank of Canada raised its target rate for overnight loans between banks to 0.50 percent from a record low 0.25 percent, the first Group of Seven country to do so since last year’s global recession. “The Bank of Canada was extremely cautious in their official statement,” said Dean Popplewell, an analyst in Toronto at the online currency-trading firm Oanda Corp. “The neutral tone didn’t sit too well with the market. We’re a commodity growth currency; it really depends on the other countries. That’s the biggest unknown variable for the Canadian economy. We cannot survive solely on our own.” The Canadian currency fell 1 percent to $1.0550 at 4:43 p.m. in Toronto, compared with C$1.0445 yesterday. One Canadian dollar buys 94.79 U.S. cents. The loonie earlier gained as much as 0.2 percent to $1.0421 as the euro rose and stocks initially gained after a report showed U.S. manufacturing expanded for a 10th month in May. ‘Considerable Uncertainty’ The euro traded at $1.2241 after earlier touching $1.2111, the weakest since April 2006. The Standard & Poor’s/TSX Composite Index of Canadian stocks climbed more than 0.1 percent earlier before declining 1.6 percent. The loonie has followed the benchmark’s “up and down,” according to CJ Gavsie, managing director for foreign exchange trading in Toronto at Bank of Montreal. “As the euro started to rebound, the stock market started to come back,” Gavsie said. “That caused a pretty good bull run in the Canadian dollar. We’ve traded sideways and we’ve been trending with the correlation with the stock markets since that point in time.” The Standard & Poor’s 500 Index fell 1.7 percent. It 8.2 percent in May, its worst month since February 2009, on concern Europe’s debt crisis will hamper the global economic recovery and China will take more steps to cool its economy. Today’s interest-rate increase, Mark Carney’s first increase as governor and the bank’s first since July 2007, was predicted by all but two of 27 economists surveyed by Bloomberg News. The bank said Canada’s recent growth and inflation have been “largely as expected” while the global recovery is “increasingly uneven.” ‘Considerable Uncertainty’ “Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments,” the Ottawa-based central bank said in a statement. The next decision is July 20. Canada’s output grew at a 6.1 percent annualized pace, twice that of the U.S. in the first quarter, while the central bank predicts inflation will exceed its 2 percent target over the next year. Canadian employers added 15,000 jobs to payrolls last month, after a gain of 108,700 positions in April, according to the median of 19 estimates in a Bloomberg survey. Statistics Canada releases the data on June 4. The loonie’s reaction to the bank’s decision was “a classic ‘buy the rumor sell the fact’ response,” Alan Ruskin, head of currency strategy at Royal Bank of Scotland Group Plc in Stamford, Connecticut, said in an e-mail. “Plainly the international environment could significantly interfere with future Bank of Canada tightening.” ‘Bit Nervous’ The yield on the December 2010 bankers’ acceptances contract dropped 10 basis points, or 0.10 percentage point, to 1.51 percent, from 1.61 percent yesterday, indicating traders are decreasing bets that the Bank of Canada will boost the benchmark at the next meeting. So-called Bax contracts, which money managers and hedge funds use to manage interest-rate risk and to place bets, have settled at an average of 17 basis points above the central bank’s overnight target since 1992, Bloomberg data show. “It looks like the street is a bit nervous that there may be no July hike,” David Love, a trader of interest-rate derivatives in Montreal at the brokerage Le Groupe Jitney Inc., said by e-mail. “Bax contracts are finding a bid here.” Canadian government securities gained. The two-year note’s yield slumped 11 basis points, or 0.11 percentage point, to 1.71 percent. The price of the 1.5 percent security maturing in June 2012 advanced 22 cents to C$99.60. Canada’s government bonds have made investors 3 percent this year, according to a Bank of America Merrill Lynch index. To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net. Mary Childs in New York at mchilds5@bloomberg.net;

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