UPDATE 1-Canada business mood brightens in Q2- BoC poll

* Survey shows sharp improvement in business sentiment

* View of tighter credit is less prevalent than in Q1

* Inflation expectations back on track

* Reports boost Canadian dollar

* Bank of Canada seen holding rates through Q2 2010 (Adds details, comment)

By Louise Egan

OTTAWA, July 13 (Reuters) - Two Bank of Canada surveys on Monday showed businesses vastly more hopeful about their economic future and that lenders are still tightening credit conditions, but at a lesser rate than in previous quarters.

The reports reinforce other data suggesting the recession may have hit bottom, and that companies may face fewer hurdles in getting financing in coming quarters.

Lending conditions in Canada continued to tighten in the second quarter, but the number of respondents pointing to tighter conditions declined for the second straight quarter, the poll results showed.

Businesses and senior loan officers, surveyed separately, said it was harder to get credit in the second quarter, both in terms of availability and in terms of pricing, than it was in the first.

But the tightening was mostly evident in specific industries that have been hardest hit by the recession, such as autos, forestry and transportation.

What the bank called the balance of opinion on credit -- those reporting tighter credit minus those reporting easier credit -- fell to its lowest level since the start of the credit crunch.

"Conditions are getting worse but at a more restricted pace and in a more discriminating fashion," said Stewart Hall, markets strategist at HSBC Canada.

The Canadian dollar strengthened against the U.S. currency immediately after the reports, eventually rising to C$1.1544 to the U.S. dollar, or 86.63 U.S. cents, up from C$1.1647, or 85.86 U.S. cents, at Friday's close. [ID:nN13179039]

Businesses revealed a dramatic shift in sentiment. Some 61 percent of senior business managers surveyed predicted faster sales growth over the next 12 months, the most on record dating back to 1998.

But analysts warned that the change in mood was more a reflection of just how bad things had gotten, and that the outlook is for a gradual recovery and not a quick rebound.