Canada Raises Rates

The Bank of Canada raised interest rates Tuesday, the third increase since September, in a move that may help keep the country’s currency at 13-year highs against its U.S. counterpart -- bad news for American tourists headed north.

Despite rising rates, the Toronto stock market hit a five-year high, helped by a continuing rally in energy and other natural-resources issues.

The Bank of Canada lifted its benchmark short-term rate from 3% to 3.25%, citing the need to fight inflation pressures.

“The economy is looking quite tight,” said David Laidler, a former economist at the central bank and a retired professor at the University of Western Ontario. Canada’s unemployment rate is at a 30-year low of 6.4%. The economy has been boosted by strong demand for oil, natural gas, gold and other commodities.

Canada was the world’s second-largest exporter of natural gas and ninth-largest exporter of oil in 2003, according to the International Energy Agency.

Natural-resources stocks have driven the Toronto Stock Exchange’s main index up 20% this year. By comparison, the U.S. S&P; 500 is up 4.3%.

The Toronto index gained 0.8% on Tuesday to a five-year high of 11,096.82.

Higher interest rates could help support the Canadian dollar, which has soared against the U.S. dollar since 2002. The robust Canadian currency means less purchasing power for Americans visiting Canada.

One U.S. dollar was worth about 1.16 Canadian dollars Tuesday, down from 1.52 in January 2003.

The Bank of Canada’s credit-tightening move followed last week’s rate increase by the European Central Bank, which lifted its key rate from 2% to 2.25% -- the first increase in five years.

The U.S. Federal Reserve is expected to raise its key rate from 4% to 4.25% on Tuesday.