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Loonie tumbles over a cent

File photo of loonies and American dollars. THE CANADIAN PRESS/Paul Chiasson.

The Canadian dollar tumbled well over a full cent US late morning Tuesday as the Bank of Canada delivered a bleak economic assessment while announcing it was keeping its key rate unchanged at one per cent.

The loonie moved down 1.2 cents to 98.49 cents US after earlier hitting parity with the U.S. dollar.

The central bank observed that the global economy has slowed markedly along with an increase in financial market volatility and a retrenchment from risk taking.

“The combination of ongoing deleveraging by banks and households, increased fiscal austerity and declining business and consumer confidence is expected to restrain growth across the advanced economies,” the bank said in a statement.

The Bank of Canada estimated Canada’s economy likely grew a modest 2.1 per cent this year — most of it in the first quarter — and will fare even worse at 1.9 per cent next year. Both numbers were 0.7 percentage points less than the bank had projected in July.

Also, the U.S. dollar strengthened after officials decided that key parts of a package meant to deal comprehensively with the Eurozone’s government debt crisis will not be ready in time for a leaders’ summit on Wednesday.

A meeting of European Union finance ministers, which was to be held just before the summit, was called off. A summit of EU and eurozone leaders planned for Wednesday evening will still be held, but its conclusions on the grand plan may remain vague without the technical work having been concluded.

The loonie had run as high as 100.11 cents US. The currency hasn’t closed above parity with the greenback since Sept. 20.

Oil prices were sharply higher for a third session with the December contract up $2.53 at US$93.80 a barrel.

Bullion prices were also positive as the December contract rose $41.40 to US$1,693.70 an ounce.

Copper prices were off four cents at US$3.41 a pound after jumping 23 cents on Monday.

Traders also took in a solid retail sales report.

Statistics Canada said sales rose a stronger than expected 0.5 per cent to $37.8 billion in August. The advance followed a 0.6 per cent decline in July and was stronger than the 0.2 per cent gain that economists expected.

The agency said the increase in August was led by higher sales at gasoline stations and at motor vehicle and parts dealers.