UPDATE 2-Bank of Canada seen on hold for now after rate decision

(Adds reaction, economist comment on rates staying on hold for
now)
By Randall Palmer and Leah Schnurr
OTTAWA, Sept 9 (Reuters) - The Bank of Canada kept its key
interest rate at 0.5 percent on Wednesday, declaring its
previous two rate cuts were still stimulating an economy that is
benefiting from solid household spending and a firm U.S.
recovery.
It added some important caveats about uncertainty abroad and
continued troubles in the resource sector, but the market
quickly interpreted the statement as meaning the central bank
was less likely to cut interest rates in the future.
"It seems they're quite comfortable with a balanced
assessment of risk, so I think this leaves the Bank of Canada on
the sidelines for quite some time," Toronto-Dominion Bank chief
Canada macro strategist David Tulk said.
The bank had cut rates in January and in July because of the
sharp oil price drop, which was causing serious reductions in
business investment, especially in the oil patch.
It said on Wednesday that the resource sector continued "to
adjust to lower prices for oil and other commodities, with some
spillover to the rest of the economy" - adjustments it said were
complex and would take considerable time.
And it said increasing uncertainty about growth prospects in
China and other emerging markets was raising questions about the
pace of global recovery.
However, weakness in the Canadian dollar is helping absorb
some of the impact of lower commodity prices and facilitating
economic adjustments, it noted, with exchange rate-sensitive
exports regaining momentum.
Still the bank said the overall export picture remained
uncertain, which struck Bank of Montreal Chief Economist Doug
Porter.
"I think caution is the byword here," he said. "That's
despite their previous sunny optimism on that front and the fact
that we've seen two very good monthly trade numbers in a row."
The market had expected the bank to stay on hold,
particularly after data showed substantial economic growth in
June ending five months of contractions, and solid job growth
and trade performance.
Traders reduced their bets of a rate cut in October to a 19
percent chance from a 32 percent chance beforehand. The market
still priced in a 46 percent chance of a cut by April 2016.
BOCWATCH
The Canadian dollar rallied to a session high of C$1.3155 to
the U.S. dollar, or 76.02 U.S. cents, from C$1.3248, or 75.48
U.S. cents.
Canada's low rates have led to a hot housing market but the
statement made no reference to that, saying only "risks to
financial stability are evolving as expected."