June 30 (Bloomberg) -- Canada's economy grew for the first time in three months in April, as the struggling manufacturing industry rebounded and wholesaling gained.

Gross domestic product expanded 0.4 percent to C$1.23 trillion ($1.21 trillion), Statistics Canada said today in Ottawa. Economists in a Bloomberg survey predicted a 0.3 percent expansion, based on the median of 21 estimates.

The factory rebound may not point to a lasting recovery from the January-to-March period when the economy shrank for the first time in five years, as U.S. demand remains crippled by the subprime mortgage collapse and record gasoline costs. Economists say the Bank of Canada will keep interest rates at 3 percent through yearend, as factory layoffs are offset by an energy boom that's caused inflation to accelerate.

``We expect weaker gains over the balance of the quarter,'' said Avery Shenfeld, senior economist at CIBC World Markets in Toronto. ``The rebound in vehicle production won't be repeated given upcoming plant closures already announced.''

Vehicle production rose 7 percent in April, not enough to recoup a 13 percent plunge the month before, Statistics Canada said. Overall, manufacturing expanded by 1.9 percent in April after two straight declines.

The Canadian dollar weakened 1 percent, the most in almost two months, to C$1.0207 per U.S. dollar at 4:15 p.m. in Toronto from C$1.0106 on June 27. The currency reached a record 90.58 Canadian cents per U.S. dollar on Nov. 7, hurting U.S. demand for Canadian lumber and automobiles.

Manufacturing Woes

Factory production has dropped 5.5 percent over the last year, as the Canadian dollar's appreciation to a record hurts exports and U.S. consumers buy fewer cars and trucks.

Magna International Inc., North America's largest auto- parts maker, said June 18 it will eliminate about 400 hourly and salaried jobs at an Ontario plant because of a decline in demand for large trucks.

Canada's economy will expand 1.4 percent this year, the slowest since 1992, because of the export slump and higher borrowing costs, the Bank of Canada said on April 22.

The economy probably grew at a 0.7 percent pace in the second quarter that's ending today, according to the median of 20 predictions gathered by Bloomberg. Output shrank at a 0.3 percent pace in the first quarter.

Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty both say they've done enough to help the economy for now, with four rate cuts starting in December and C$60 billion of tax reductions announced last year.

Opposition parties say Flaherty must do more to help the manufacturing and forestry industries and laid-off workers.

Wholesaling, Retailing

Today's report gives some evidence the economy is responding to the stimulus. Wholesaling rose 2.1 percent in April and retailing rose 0.6 percent, Statistics Canada said.

Record demand for metals and energy has propped up the world's eighth-biggest economy during the U.S. slowdown by bolstering employment and consumer spending. Canada is home to the second-biggest crude oil reserves behind Saudi Arabia and is the No. 2 wheat exporter after the U.S.

``The Canadian oil sands really are the center of the world right now when it comes to incremental production,'' TransCanada Corp. Chief Executive Officer Hal Kvisle said June 20 at a conference in Calgary.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.

Last Updated: June 30, 2008 16:18 EDT