The Canadian Press

The loonie posted its biggest single-day gain in nine months Tuesday following a bullish economic forecast from Canada’s central bank.

The Canadian dollar was up 1.58 cents at 100.12 cents US after the Bank of Canada signalled it may raise rates very soon — a move that would likely increase international demand for Canadian bonds and dollars. Earlier, the loonie had gained as much as 1.76 cents to 100.30 cents US.

The central bank projected that Canada’s economy will grow a faster-than-expected 3.7% this year, and inflation will also move higher. In its last forecast in January, the bank said the economy would grow 2.9% in 2010.

Because of the strong economic outlook, the Bank of Canada said it was withdrawing its conditional commitment to keep the key lending rate at its current record low of 0.25% until the end of June. That sets the stage for a quarter-point or even a half-point hike on June 1.

The Canadian dollar will remain strong as long as investors expect the bank to raise rates and tighten the money supply. But a high loonie could, in turn, force the bank to cut rates again later in the year, said Danielle Park of Venable Park Investment Counsel in Barrie, Ont.

“They started to hike (rates) in ‘02 and then had to backtrack because they realized the economy was not recovering as strongly as they’d hoped,” Park said.

“And the spiking dollar really plays into that…they raise rates, that pushes up the currency, and that puts a drag on the expansion” since a strong dollar hurts manufacturers and other businesses that sell their products south of the border, she added.

The Toronto stock market closed up 10.56 points at 12,113.53, giving up some of its earlier gains amid a weak gold sector.

The gold sector fell 1.6% even as the June bullion contract added $3.40 to US$1,139.20 an ounce. Barrick Gold Corp. (TSX:ABX) lost 73 cents to C$39.03.

The Toronto energy sector was the biggest gainer Tuesday, adding 1.16% as the June crude contract on the New York Mercantile Exchange crept up 72 cents to US$83.85 a barrel. Encana Corp. (TSX:ECA) stock gained 34 cents C$31.77.

The base metals sector was nearly flat, slipping 0.04% as the May copper contract on the Nymex gained 1.65 cents to US$3.51 per pound. Shares in Teck Resources Ltd. (TSX:TCK.B) lost 71 cents to C$41.71 before the miner reported its first-quarter results.

Financial stocks also posted a loss, falling 0.43%. Shares in TD slipped 69 cents to $76.28 after TD Ameritrade Holding Corp., a U.S.-based discount brokerage that’s 40% owned by TD Bank, cut its earnings outlook for the year because of low interest rates and less active trading.

The TSX Venture Exchange lost 1.76 points to 1,652.20.

Internationally, investors appear to have at least temporarily set aside concerns about a potential overhaul of financial regulations and the civil fraud charges levied against Goldman Sachs Group Inc. (NYSE:GS).

Instead, traders focused on another batch of strong earnings reports from across a wide range of sectors.

In New York, the Dow Jones industrial average gained 25.01 points to 11,117.06, while the Nasdaq rose 20.20 points to 2,500.31. The S&P 500 added 9.65 points to 1,207.17.

In corporate news, Goldman Sachs said its first-quarter profit almost doubled to US$3.3 billion as its trading business again surpassed the rest of the financial industry. However, news that Britain’s financial regulator is launching a full-blown investigation into Goldman Sachs International could partially offset this. The bank’s stock fell $3.34 or 2% to US$159.98.

In Canada, Provident Energy Trust (TSX:PVE.UN) and Midnight Oil Exploration Ltd. (TSX:MOX) said they plan to merge their producing assets into a new growth-oriented oil and gas company, while Provident’s infrastructure assets will continue to operate separately.

Shares in Midnight Oil added eight cents or 7.6% to $1.13 while Provident gained nine cents to $7.98.

Northern Energy and Mining Inc.’s (TSX:NNE) stock jumped 10 cents or nearly 15% to 78 cents after the company, a part-owner of a British Columbia coal project, said the project will be sold.

And one of Canada’s largest grain handlers, Viterra Inc. (TSX:VT), is investing up to US$25 million in a joint venture to build a canola crushing facility in China. Viterra stock gained 25 cents or nearly 3% to $8.97.