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* January growth solid at 0.2 pct after two weak quarters
* Manufacturing sector was main driver of growth
* February producer prices up 1.4 pct; raw materials 2.2 pct
* Q1 growth seen well below 2.3 pct central bank forecast
By Louise Egan
OTTAWA, March 28 (Reuters) - Canada's economy bounced back from a year-end slump in January thanks to factories, mines and the return of professional ice hockey, but growth still looks too weak to match the central bank's upbeat outlook and interest rates are unlikely to budge until 2014.
Gross domestic product expanded by 0.2 percent in the month, Statistics Canada said on Thursday, following the weakest two quarters since the 2008-09 recession and a 0.2 percent contraction in December.
A comeback in the manufacturing sector helped spark the turnaround, along with strength in the mining and energy sectors and the delayed start of the country's beloved hockey season after National Hockey League players and owners settled a months-long labor dispute.
The data suggests the economy is starting the year on a more solid footing after disappointing 0.6 percent annualized growth in the fourth quarter.
But economists are betting the first quarter will fall far short of the central bank's projected 2.3 percent growth.
"Once the darling of advanced economies, Canadian economic growth is expected to converge to be more in line with its peers," said Mazen Issa, macro strategist at TD Securities.
Canada recovered much more quickly from the 2008-09 recession than did the United States and others but has been spinning its wheels for several months as exports and manufacturing sputtered.
That has forced the Bank of Canada to acknowledge there is more slack in the economy than it had anticipated. As a result, it has gradually softened its talk of an interest rate increase, and this month said rates will remain on hold "for a period of time".
Issa said the January report was in line with TD's forecast of 1.6 percent growth in the first three months of the year, "and the broader narrative of a gradual grind higher over the course of the year."
The central bank will publish updated forecasts alongside its next interest rate decision on April 17.
Manufacturing expanded 1.2 percent in January as gains in fabricated metals and wood products offset a decline in transportation equipment.
The mining, quarrying and oil and gas extraction industry expanded 0.2 percent, while the arts and entertainment sector got a one-time boost of 4.1 percent as Canadians flocked to hockey arenas and sports pubs after the NHL labor dispute ended.
Players and owners reached a deal in January to end a four-month lockout of players. Canada has NHL teams in Vancouver, Calgary, Edmonton, Winnipeg, Toronto, Ottawa and Montreal.
Industries that shrank in January included agriculture and forestry, construction, and finance and insurance.
In a separate report, Statscan said Canadian industrial product prices increased 1.4 percent in February from January, the biggest jump since June 2008 as prices for petroleum, coal and other commodities charged higher.
The Canadian dollar hit its strongest level in more than a month - at C$1.0145 versus the U.S. dollar, or 98.57 U.S. cents - immediately after the release of data. It later retreated and was little changed from Wednesday's North American close of C$1.0165, or 98.38 U.S. cents.
The solid GDP report along with an inflation rate that is below the Bank of Canada's 2 percent target has confirmed market expectations that the bank will hold rates at the current 1.0 percent until 2014.
"We're looking at possible downward growth revisions from the BoC again ... alongside slightly higher spare capacity estimates. We continue to expect an incrementally more dovish Monetary Policy Report in a couple of weeks," said Derek Holt, economist at Scotiabank.
Global forecasters surveyed by Reuters in February predicted the next rate hike will be in the first quarter of 2014. However, traders are pricing in a slight bias towards a rate cut later this year, based on yields on overnight index swaps, which trade based on expectations for the policy rate.