Source: The Canadian Press

The Canadian dollar gained ground Thursday morning as data showed the Canadian economy contracted in July within expectations and commodity prices rose on global markets.

Statistics Canada reported that gross domestic product edged down 0.1%, the first monthly decline since August 2009, with manufacturing, retail and wholesale trade, construction and forestry all posting decreases.

The showing met economists’ expectations and the weak GDP showing won’t likely affect the Thursday session on the Toronto Stock Exchange.

The Canadian dollar was up 0.57 of a cent to 97.28 cents US but that was attributed mostly to a weaker U.S. dollar and rising commodity prices rather than the GDP report.

“Our market is still highly leveraged towards resources and financials and that tends to be driven more by global growth rather than Canadian growth,” said Jeff Bradacs, senior investment analyst at MFC Global Investment Management.

U.S. futures moved into positive territory after the Commerce Department reported that the country’s economic growth was a bit better than expected during the second quarter while first-time claims for unemployment benefits dropped more than expected.

The Dow Jones industrial futures gained 30 points to 10,810, the Nasdaq futures were ahead 6.25 points to 2,015.25 while the S&P 500 futures added 3.3 points to 1,144.2.

The U.S economy expanded at a 1.7% annual rate, a tad higher than the 1.6% growth estimated a month ago.

Many think the economy grew at around the same anaemic pace, or slightly worse, during the July-to-September quarter. Little improvement is expected in the final quarter of this year.

Also, the Labour Department said first-time claims for unemployment benefits fell to 453,000 last week. That’s better than the 460,000 economists had forecast.

The Toronto stock market could find early support from the resource groups as gold prices went further into record territory while a weak U.S. dollar and signs of lower inventories pushed crude oil prices ahead.

But worries about Europe’s debt crisis and heightened trade friction between the U.S. and China will overhang markets.

The November crude contract on the New York Mercantile Exchange gained 92 cents to US$78.78, adding to Wednesday’s gain after the Energy Information Administration said crude oil inventories declined by 500,000 barrels last week, against an expected rise of 2.2 million barrels.

The December gold contract on the Nymex gained $3.30 from Wednesday’s latest record high close to US$1,313.60 an ounce while the December copper contract was unchanged at US$3.67 a pound.

Government debt worries were front and centre after Ireland announced it would sink billions into its failed banks while Spain’s public debt rating was downgraded.

Ireland said it would put 3 billion euros (US$4.1 billion) more into Allied Irish and take majority control. Along with other bailouts, that would push the public deficit above 30% of annual economic output, a postwar record in Europe.

Moody’s Investor Services cut Spain’s public debt rating, a move many in the markets had expected but which confirms that Europe will be slow to emerge from its debt crisis.

Whereas Spain’s debt downgrade was largely priced in by investors and follows earlier downgrades by other ratings agencies, Ireland’s move to further prop up its banks proved a mixed bag for markets.

Meanwhile, Beijing warned Washington on Thursday that economic ties might be damaged after American lawmakers escalated the conflict over China’s currency controls. The Commerce Ministry said a measure approved Wednesday by Congress to allow Washington to penalize governments that manipulate exchange rates violated free-trade rules. It gave no indication whether Beijing might retaliate.

In Asia, Japan’s benchmark Nikkei 225 stock average lost 2%.

South Korea’s Kospi gained 0.3%, Australia’s S&P/ASX 200 shed 1.3% and Hong Kong’s Hang Seng retreated 0.1%.

London’s FTSE 100 index shed 0.07%, Frankfurt’s DAX was down 0.23% while the Paris CAC 40 lost 0.81%.

The Toronto stock market jumped just over 100 points Wednesday to its highest level in more than two years on rising commodity stocks and a gain in market heavyweight Research In Motion (TSX:RIM).

Mostly positive readings from economic data on U.S. manufacturing, home sales and jobs have helped push stocks higher this month after a dismal performance in August.

So far this month, the Dow Jones industrial average is on track for its best September since 1939 with a gain of 8.4%. The TSX is up a much more modest 3.9% for the month, but up 5.4% for the year. The Dow has climbed about 4% year to date.

In corporate news, American insurer AIG has reached a deal to repay billions of dollars it received during the credit crisis in late 2008. American International Group Inc. received a bailout package worth as much as US$180 billion from the government, which received an 80% stake in the company in return. The U.S. Treasury Department will swap preferred shares it currently holds in AIG for common stock and then sell those shares over time.

The American company that’s buying Montreal-based coffee services firm Van Houtte saw its shares fall sharply Wednesday after disclosing that U.S. regulators are looking into some of its accounting practices and a relationship with a major U.S. vendor. Shares of Vermont’s Green Mountain Coffee Roasters Inc. (Nasdaq:GMCR) fell almost 16% on the Nasdaq. Green Mountain recently announced it was buying Van Houtte for $915 million.