UPDATE 2-Healthy export growth helps cut Canada's trade deficit in July

(Adds analyst quotes, market reaction, background)
OTTAWA, Sept 3 (Reuters) - Canada's export sector posted
healthy growth for the second month in a row in July, helping
cut the country's trade deficit to an eight-month low and adding
to expectations the central bank will hold rates steady when it
meets next week.
The trade deficit narrowed to C$593 million ($446 million),
data from Statistics Canada showed on Thursday, much less than
the C$1.30 billion deficit that economists had forecast. It was
the smallest since a C$381 million deficit recorded in November
2014.
Exports grew by 2.3 percent from June to C$45.46 billion,
the second highest figure on record, on shipments of motor
vehicles, consumer goods and aircraft. Exports of energy
products dropped by 5.7 percent, largely due to lower prices.
Economists were also encouraged by an increase in export
volumes, which could add to third-quarter growth, if sustained.
"There's no two ways about it, this is a solid report,"
Benjamin Reitzes, senior economist at BMO Capital Markets, wrote
in a research note.
Data last week confirmed that Canada was in a mild recession
in the first half of the year as the oil-exporting country has
been hurt by a slide in crude prices. But a pickup in growth in
June underscored expectations the economy will fare better in
the latter half of the year.
Reitzes said the strong export volume figures, as well as
June's better-than-expected growth reading, puts more confidence
in BMO Capital's forecast for 2.8 percent growth in the third
quarter.
The data will be studied by the Bank of Canada, which cited
disappointing non-energy exports as one reason it cut interest
rates in July, for a second time this year.
Economists said the figures reinforced their expectations
that the bank will leave interest rates at 0.5 percent when it
announces its decision on Sept. 9, and traders trimmed their
expectations of another cut.
Markets are now pricing in a 19 percent chance that rates
will be lowered to 0.25 percent. The report helped the Canadian
dollar firm against the greenback. CAD=D4 BOCWATCH
Imports increased by 1.7 percent to a record C$46.05 billion
on higher shipments of energy products, aircraft and other
transportation equipment as well as electronic and electrical
equipment.
Exports to the United States, which accounted for 76.4
percent of Canada's global total in July, rose by 2.1 percent,
while imports grew 4.3 percent. As a result, Canada's trade
surplus with the United States dropped to C$3.79 billion from
C$4.36 billion in June.
($1=$1.33 Canadian)