Sept. 3 (Bloomberg) -- The Canadian dollar fell after the Bank of Canada kept its benchmark interest rate unchanged at 3 percent and said economic activity was lower than expected in July.

The Canadian currency weakened 0.2 percent to C$1.0690 at 9:05 a.m. in Toronto, from C$1.0672 yesterday. One Canadian dollar buys 93.55 U.S. cents.

``The Canadian dollar has moved away from parity and we think it will continue to do so,'' Dana Peterson, an economist at Citigroup Global Markets Inc. in New York, said before the decision was announced. ``The big concerns are what's happening in terms of U.S. domestic demand and commodity prices.''

The decision matched the median forecast of 28 economists surveyed by Bloomberg News.

Consumer prices rose 0.3 percent in July, less than the 0.4 percent forecast in a Bloomberg survey, the government said Aug. 21. Canada's gross domestic product expanded at a 0.3 percent annualized rate in the second quarter, half the 0.6 percent pace forecast in another survey, the government said Aug. 29.

The yield on the two-year government bond rose 7 basis points, or 0.07 percentage point, to 2.73 percent. The price of the 2.75 percent security due in December 2010 declined 14 cents to C$100.04.

To contact the reporter on this story: Chris Fournier in Montreal at Cfournier3@bloomberg.net

Last Updated: September 3, 2008 09:06 EDT