Canadian economic activity slowed in the fourth quarter of 2002 as real gross domestic product advanced 0.4%, less than one-half of the pace set in the third quarter. Balanced against a higher than expected consumer inflation number, released earlier this week, today’s GDP report will lessen the pressure on the Bank of Canada to raise interest rates.

The economy lost steam over the course of the quarter, with GDP up a modest 0.1% in November and December. A drop in exports during the quarter was only partly offset by sustained strength in personal expenditures.

Statistics Canada said that the slower rate of growth in the fourth quarter resulted from decreased output in manufacturing and agriculture, and lower activity levels in the finance sector. The economy was buoyed by the services sector, in particular wholesale and retail trade, public administration, health care, real estate and business services. Contrary to the U.S., business investment in plant and equipment in Canada, declined despite the continued growth in profits.

The Canadian dollar has maintained its perch above the US67¢ level. The loonie has, no doubt, been buoyed by solid earning reports from the big banks. Analysts are expecting a slight profit increase from RBC Financial Group, when it reports today.

American GDP for the fourth quarter has been revised upward of 1.4%. That’s double analysts’ expectations. The revised report showed increased spending in equipment and software. Of course, all spending goes into the GDP number, including emergency response and war preparation spending.

Pre-market futures trading has increased moderately since the number was released, but it’s difficult to say whether the U.S. GDP report will have much effect on equity trading Friday, as investors are focused less on fundamentals than they would normally be, in light of continued geo-political uncertainty. More movement may occur after new numbers on activity by American consumer and purchasing managers come out , later this morning.

Asian stock markets were mixed on overnight. Tokyo’s Nikkei average edged up 3.66 points to 8,363.04. In Hong Kong, the Hang Seng index slipped 11.58 points to 9,122.66.

In Europe, trading is flat in early afternoon trading. London’s FTSE 100 index is up 12.20 points to 3,582.1, while The bourses in Paris and Frankfurt are flat.