Jan. 13 (Bloomberg) -- Canada's dollar rose on expectations the world's eighth largest economy will sustain one of the strongest growth rates among leading industrialized nations.

Gross domestic product, the total of all goods and services produced in Canada, expanded at a 2.8 percent annual rate in the third quarter. It was the third-highest rate in the Group of Seven, behind the U.S. and Japan. A report today showed vehicle sales increased in November, continuing a recovery from a two- month tumble in August and September.

``The economy still looks strong in business spending and consumption,'' said Mark Chandler, a senior economist with Scotia Capital Inc. in Toronto. ``This clearly supports the currency.''

The currency rose 0.1 percent to 86.20 U.S. cents at 9 a.m. in Toronto from 86 cents late yesterday. One U.S. dollar buys C$1.1604. The Canadian dollar climbed to 87.45 U.S. cents on Dec. 14, the highest since January 1992.

New motor vehicle sales rose 3.1 percent in November after an increase of 3.3 percent in October, Statistics Canada said today in Ottawa. It compared with the median forecast of 3 percent in a Bloomberg survey. Vehicle sales dropped almost 8 percent in September and about 9 percent in August.

Canada's economy may expand this year by 2.9 percent, according to the median forecast in a Bloomberg News survey of 13 analysts from Dec. 23 to Jan. 9. It may further benefit from Japanese interest in importing Canadian oil.

Japan, which imports about 90 percent of its oil from the Middle East, will study the feasibility of buying oil sands, or heavy oil, from Canada to diversify its sources of energy, Trade Minister Toshihiro Nikai told reporters in Tokyo today. Officials from Japan's trade ministry, refineries and trading companies will begin a visit to Canada tomorrow, Nikai said.

Energy, Currency Link

``Anytime there is interest generated outside Canada about oil sands, or energy resources in general, it is positive for the Canadian dollar over time,'' said Jack Spitz, director of foreign exchange at National Bank of Canada in Toronto.

Canada's oil sands hold the second-biggest oil reserves after Saudi Arabia. The sands contain a heavy oil called bitumen, which can be processed into refinery-ready crude and made into gasoline, diesel and other fuels.

Commodities comprise about a third of Canada's exports and 10 percent of its C$1.1 trillion economy. Surging commodity prices helped the Canadian dollar post its fourth straight annual gain against its U.S. counterpart in 2005, the longest winning streak since the 1980s.

Comparison With U.S.

The Canadian dollar also gained today as investors sold its U.S. counterpart to buy other major currencies after an index of producer prices was lower than expected, excluding energy and food items.

``The U.S. dollar is trading weaker on the somewhat softer- than-expected number,'' said Spitz. ``This generally benefited other currencies across the board, including the Canadian dollar.''

Prices paid to U.S. factories, farmers and other producers rose 0.9 percent following a 0.7 percent decline in November. Core prices, which exclude fuel and food, increased 0.1 percent for a second month, limited by cheaper vehicles and computers. They were expected to rise 0.2 percent, based on the median forecast of economists in a Bloomberg News survey.

The yield of the benchmark 10-year bond, which moves in the opposite direction of price, was little changed at 4.03 percent. The price of the 4.5 percent bond maturing in June 2015 was C$103.69.

To contact the reporter on this story: Min Zeng in New York at mzeng2@bloomberg.net.

Last Updated: January 13, 2006 09:03 EST