01/11/2012 08:43 EST | Updated 03/12/2012 05:12 EDT

Canadian dollar little changed ahead of Federal Reserve's economic update

TORONTO - The Canadian dollar closed slightly lower Wednesday amid lower oil prices and an encouraging assessment of the economy of Canada's biggest trading partner.

The loonie slipped 0.22 of a cent to 98.11 cents US.

The Federal Reserve's so-called Beige Book, a snapshot of economic conditions from across America, reinforced the belief that the U.S. will be able to avoid slipping back into recession.

It said consumer spending picked up, factories made more goods, Americans stepped up travel and the auto industry enjoyed its best stretch of the year. The Fed sees modest to moderate growth but on a negative note, the Fed said the housing sector is still soft.

Recent economic reports have also raised hopes for the economy — data released just in the last week showed manufacturing expanding at a faster than expected pace while employment gains for December also beat expectations.

Traders also looked to the next interest rate announcement Thursday from the European Central Bank. The ECB is widely expected to carry on lowering interest rates to help the region get through an economic downturn this year that economists think could turn into a recession.

"We continue to believe that 50 basis points of cuts will be coming down the pipeline, with the first such move likely to take place in February rather than tomorrow," said Mark Chandler, head of Canadian FIC Strategy at RBC Dominion Securities Inc.

Oil prices were lower as data showed an unexpected big increase in U.S. crude inventories.

The February crude contract on the New York Mercantile Exchange lost $1.37 to $100.87 barrel after the U.S. Energy Information Administration said that oil supplies rose by five million barrels last week against an expected decrease of a million barrels.

March copper was ahead three cents at US$3.55 after running ahead 10 cents on Monday as weak trade data from China raised hopes that officials will loosen lending requirements to encourage growth but in a limited way to prevent inflaming its already sizzling property market.

Traders were also encouraged by strong revenue figures and a positive outlook from resource giant Alcoa Inc.

Bullion prices headed higher for a second day as February gold gained $8.10 to US$1,639.60 an ounce.