UPDATE 1-Canada dealers see Sept rate hike, no more in 2010

* 10 of 12 dealers see hike of 25 bps in September

* 7 of 12 dealers think Sept 8 hike will be last of year

* Dealers see key rate at 0.75 to 1.5 percent by yr end
(Updates with details, commentary)

By Claire Sibonney and Jennifer Kwan

TORONTO, Aug 31 (Reuters) - Most of Canada's primary
securities dealers still think the Bank of Canada will raise
interest rates next week, but now forecast the slowing economy
will make it the last such move of 2010.

Ten of 12 primary dealers surveyed by Reuters on Tuesday
said there's enough momentum in the Canadian economy to justify
the central bank raising its key policy rate to 1 percent at
the next scheduled rate announcement on Sept. 8.

But the outlook was more pessimistic than polls taken in
July and earlier in August, when no Canadian dealer predicted
the central bank would pause in September.

Evidence has piled up in recent weeks that North America's
economy is stalling, including data on Tuesday that showed
Canadian second-quarter growth slowed more sharply than
expected. [ID:nN31202447]

"It makes sense to get to a nice round number and to
distance oneself from the zero bound but for now anyhow the
Bank of Canada probably does not have a lot further to go,"
said Eric Lascelles chief Canada macro strategist at TD
Securities.

"The economic data has consistently disappointed, including
today, and so the urgency to raise rates is not nearly what it
once was. Similarly with some of the global risks out
there."

Financial markets are pricing in less than a 50 percent
chance of a Sept. 8 hike based on yields on overnight index
swaps, according to a Reuters calculation. BOCWATCH

Two dealers, CIBC World Markets and National Bank
Financial, now call for a pause in September.

"Given that growth and now inflation have each come in
materially enough below their previous forecast we see that as
giving them the green light to pause and wait for more data,
said CIBC chief economist Avery Shenfeld.

"Our expectation is that growth will continue to remain
muted enough that they will stay on hold for the rest of the
year."

Yanick Desnoyers, economist at National Bank Financial,
emphasized that U.S. risks were the biggest threat to Canada's
outlook going forward, especially the tepid prospects for U.S.
third-quarter growth.

He said uncertainty about tax cuts enacted under former
President George W. Bush, set to expire at year end, could also
weigh on the growth of Canada's largest trading partner.

"If U.S. households and corporations don't know what's
going to happen with their taxes this year, that's not a huge
incentive to invest or consume," he said.

"ONE AND DONE"?

Seven of the primary dealers forecast a September rate hike
will be the last of the year, with the central bank holding
steady at its October and December meetings.

The bank raised rates in both June and July, a quarter
point each time, but its key policy rate -- the target for the
overnight rate -- is still a low 0.75 percent.

Besides Tuesday's GDP data, other soft economic figures in
August included tame inflation, an unexpectedly stark monthly
jobs loss, cooling in the housing sector, and a ballooning
trade deficit.

"It's a close call but we're still leaning towards a hike
in September," said Paul Ferley, assistant chief economist at
Royal Bank of Canada, adding that today's GDP data raises the
probability of central bank staying on the sidelines next
week.

Ferley said the next key indicator will be Friday's U.S.
payrolls report, given the Bank of Canada has suggested further
interest rate hikes would be weighed against both domestic and
global economic developments.

PRIMARY DEALER SEPT OCT DEC

RATE RATE RATE

BOA-MERRILL LYNCH 1.00 1.00 1.00

BMO CAPITAL MARKETS 1.00 1.00 1.00

CASGRAIN & CO LTD 1.00 1.00 1.00

CIBC WORLD MARKETS INC. 0.75 0.75 0.75

DESJARDINS SECURITIES 1.00 1.00 1.00

DEUTSCHE BANK SECURITIES LTD 1.00 1.00 1.25

HSBC SECURITIES 1.00 1.25 1.50

LAURENTIAN BANK SECURITIES 1.00 1.00 1.00

NATIONAL BANK FINANCIAL 0.75 0.75 1.00

RBC CAPITAL MARKETS 1.00 1.00 1.25

SCOTIA CAPITAL INC. 1.00 1.00 1.00

TORONTO-DOMINION BANK 1.00 1.00 1.00

($1=$1.06 Canadian)
(Additional reporting by Ka Yan Ng; Editing by Jeffrey
Hodgson)