CANADA FX DEBT-Canadian dollar edges off 3-mth low after data

TORONTO, March 2 (Reuters) - The Canadian dollar edged off a three-month low versus the U.S. dollar after data showed the Canadian economy contracted less than expected.

The domestic economy shrank at an annualized rate of 3.4 percent in the fourth quarter of last year, the first decline and worst performance since 1991, as the global downturn crippled exports and led consumers and businesses to cut spending. [ID:nN02254034]

Markets had expected a fourth-quarter annualized contraction of 3.6 percent, according to the median forecast in a Reuters poll.

“This figure wasn’t quite as sour as it could’ve been and that’s helping the Canadian dollar,” said Eric Lascelles, chief economics and rates strategist, at TD Securities.

At 9:10 a.m. (1410 GMT), the Canadian dollar was at C$1.2826 to the U.S. dollar, or 77.97 U.S. cents, up from pre-data level that hit as low as a three-month low at C$1.2889 to the U.S. dollar, or 77.59 U.S. cents.

But it was still well off Friday’s Bank of Canada closing level at C$1.2723 to the U.S. dollar, or 78.60 U.S. cents.

The data cements market expectations that the Bank of Canada will chop interest rates on Tuesday. A Reuters poll last week revealed two-thirds of primary securities dealers forecast a half-point easing that would take the central bank’s key overnight rate to a record low of 0.5 percent.

The Canadian currency had fallen ahead of the Canadian GDP data with a host of others as financial woes prompted a flight to safety to U.S. dollar assets as insurer American International Group posted a big loss amid U.S. government aid for the ailing firm. (Reporting by Ka Yan Ng and Jennifer Kwan, Editing by Chizu Nomiyama)