(Adds more background and market reaction)
Feb 4 (Reuters) - Wal-Mart Stores Inc will invest about C$500 million ($452.35 million) this year to expand in Canada, the world's largest retailer said on Tuesday, news that hit shares of its Canadian rivals.
Wal-Mart said its expansion plans will create more than 7,500 jobs including construction. A week ago, Target Corp said it would open nine new stores across Canada, adding to the 124 it opened last year.
Over the past year U.S. retailers such as Wal-Mart and Target have expanded in Canada, posing a threat to local retailers such as Loblaw Cos Ltd, the country's largest grocer, and Canadian Tire, an automotive, leisure and home goods chain.
Increased retail competition has also been cited by some economists as a reason for the country's soft inflation rate, which has dampened the prospect of higher interest rates and helped weaken the Canadian dollar.
Loblaw slid 1.3 percent to C$41.86 and Canadian Tire fell 1.5 percent to C$93.51 on Tuesday on the Toronto Stock Exchange.
Target's first year in Canada was more challenging and costlier than anticipated, and forced the company to cut its full-year profit forecast.
It opened to much fanfare and was expected to challenge Wal-Mart in a market its fellow U.S. retailer has dominated for some two decades. But Target struggled to win over shoppers who were disappointed by the selection and pricing compared to its U.S. stores.
Wal-Mart's investments for the coming fiscal year, which are slightly higher than the C$450 million it earmarked last January for expansion in Canada, include more than C$376 million for store projects, C$91 million for distribution networks to expand fresh food capability and C$31 million for e-commerce.
The world's biggest retailer said it planned to complete 35 supercenter projects in Canada by Jan. 31, 2015, adding one million square feet of retail space. The supercenters feature more grocery items than its standard stores, putting pressure on profit margins for Canadian grocers.
Wal-Mart's store count in Canada will rise to 395 by the end of January 2015, including 282 supercenters and 113 discount stores, the retailer said.
The locations of stores and distribution center projects will be announced later, the company said.