Oct. 29 (Bloomberg) -- Canada’s dollar climbed from a three-week low against its U.S. counterpart as stocks and commodities surged after a report showed the American economy grew in the third quarter for the first time in a year.

The Canadian dollar still headed for a decline for the week on earlier stock losses and warnings from central-bank policy makers that the nation’s economic recovery is jeopardized by the strength of the currency. It appreciated 14 percent this year.

“U.S. growth is good news for growth in the global economy and good news for commodities, so ultimately good news for the Canadian dollar,” said Benjamin Reitzes, an economist in Toronto at BMO Capital Markets, a unit of Canada’s fourth- largest bank.

Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, strengthened 1.3 percent to C$1.0672 at 4:47 p.m. in Toronto, from C$1.0811 yesterday, when it opened at C$1.0647. It touched C$1.0821, the weakest level since Oct. 5, and declined 1.3 percent since Oct. 23. One Canadian dollar purchases 93.70 U.S. cents.

The loonie extended gains after a Commerce Department report showed the gross domestic product of the U.S., Canada’s largest trading partner, grew at a 3.5 percent annual pace in the third quarter after shrinking for the previous four periods. Economists predicted a 3.2 percent increase, according to the median in a Bloomberg News survey.

‘Reversal in Sentiment’

“Today we’ve had a reversal in sentiment across all markets as stronger GDP put risk into the market once again,” said Camilla Sutton, director of currency strategy in Toronto at Scotia Capital Inc., part of Canada’s third-biggest bank.

Crude oil for December delivery climbed 3.3 percent to $80.02 a barrel on the New York Mercantile Exchange and touched $80.46 a barrel. The Reuters-Jefferies CRB Index of 19 raw materials rose 2.1 percent. Raw materials generate more than half of Canada’s export revenue, and crude is the nation’s biggest export.

The Standard & Poor’s 500 Index advanced 2.3 percent after four straight days of declines.

“The risk now is that we get to see a lack of confidence in the recovery and all the steam comes out of the markets,” said John Curran, a Toronto-based senior vice president at CanadianForex Ltd., an online foreign- exchange dealer. “If that happens, we will be above C$1.10.”

Bonds Decline

Government bonds fell, pushing the yield on the benchmark 10-year Canadian note up five basis points, or 0.05 percentage point, to 3.50 percent. The price of the 3.75 percent security due in June 2019 dropped 38 cents to C$102.04. The yield on the two-year note yield rose three basis points to 1.47 percent.

Canadian factory prices and raw-material costs declined for the second time in three months in September, led by lower prices for petroleum products. The industrial product price index dropped 0.5 percent after a 0.5 percent gain in August, Statistics Canada said. The fall exceeded the median prediction in a Bloomberg survey of a 0.2 percent drop. Raw-material prices also fell more than forecast, dropping 1.1 percent.

The loonie gained 0.2 percent this month against its U.S. counterpart. It appreciated to C$1.0207 on Oct. 15, heading toward the first time since July 22, 2008 it traded at parity with the U.S. currency.

Bank of Canada officials amplified warnings at their Oct. 20 policy meeting that the appreciation of the nation’s currency, which gained 27 percent from a four-year low on March 9 through Oct. 19, threatens an economic recovery. Bank Governor Mark Carney reiterated the comments in parliamentary testimony this week.

The Canadian dollar will trade at C$1.05 to the greenback by year-end, according to a Bloomberg survey of 36 economists and analysts.

To contact the reporters on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net; Ruby Madren-Britton in New York at rmadrenbritt@bloomberg.net

Last Updated: October 29, 2009 16:50 EDT