01/03/2012 09:09 EST | Updated 03/04/2012 05:12 EST

Canadian dollar sharply higher, commodities rise on strong manufacturing data

TORONTO - The Canadian dollar closed higher Tuesday as commodity prices took off on increased geopolitical risks and strong manufacturing data from China and the United States.

The loonie rose 0.58 of a cent to 98.91 cents US.

The U.S. Institute for Supply Management said its survey for last month showed the manufacturing index expanding more than expected, coming in at 53.9. That has higher than the expected reading of 53 and much higher than the 52.7 reading registered in November.

Traders were also relieved to see that China's main manufacturing index showed expansion, coming in at 50.3 on manufacturing and jumping to 56 on services.

China has been an important prop for the fragile global economic recovery, supporting commodity prices and energy and mining stocks. But growth slowed in 2011 as the Chinese government discouraged lending to control high inflation.

Oil got extra lift from rising tensions between the West and Iran. Prices jumped well over US$3 a barrel after Iran test fired a surface-to-surface cruise missile Monday, part of 10-day naval manoeuvres scheduled to end Tuesday. Iran’s navy chief, Admiral Habibollah Sayyari, said the test showed the key oil passageway, the relatively narrow Strait of Hormuz, is "completely under our control."

Iran has threatened to close the strait, through which one-sixth of global crude exports pass, as possible retaliation to new U.S. economic sanctions over Iran’s nuclear program.

The February crude contract on the New York Mercantile Exchange ran ahead $4.13 to US$102.96 a barrel.

Copper prices also advanced following the Chinese data. Copper is viewed as a key economic barometer because it is widely used in infrastructure projects and consumer products and China is the biggest buyer of the metal. The March contract in New York gained nine cents to US$3.53 a pound.

A weak U.S. dollar also helped push bullion higher with the February contract up $33.70 to US$1,600.50 an ounce.

A weaker greenback usually helps improve commodity prices, which are denominated in dollars, as it makes oil and metals less expensive for holders of other currencies.

Traders also took in a commitment by the U.S. Federal Reserve to start updating the public four times a year on how long it plans to keep short-term interest rates at record lows, starting with its Jan. 24-25 meeting.

The change could help assure investors, companies and consumers that rates won’t rise before a specific time and might help lower long-term yields further, in effect providing a kind of stimulus.