03/23/2012 12:10 EDT | Updated 05/23/2012 05:12 EDT

Loonie closes higher after earlier fall below parity; inflation higher

TORONTO - The loonie rebounded to close with a slight gain against the U.S. dollar Friday after earlier falling below parity as commodity prices advanced and Canada's inflation rate rose slightly more than expected.

The loonie added 0.10 of a cent to close at 100.13 cents US after falling as low as 99.79 cents US.

Canada's annual inflation rate rose for the second consecutive month in February as higher prices on gasoline and food pushed the cost of consumer goods in Canada up one notch to 2.6 per cent.

As well, core inflation — the underlying increase in consumer goods excluding volatile items such as energy and fresh foods — rose two notches to 2.3 per cent, above the Bank of Canada's two per cent target.

That's the fastest pace of price increases since 2008, said Emanuella Enenajor of CIBC World Markets.

"It seems there’s no solace for consumers from high prices at the pump. An increase in the cost of gasoline in February was yet again a contributor to the month’s near-consensus 0.1 per cent gain," she said.

"The rise in the ex-volatile rate could prove temporary, so the Bank of Canada will likely look through today’s elevated reading — suggesting limited policy implications."

May oil was up $1.52 to US$106.87 a barrel on the New York Mercantile Exchange. Gold bullion was up $9.90 to US$1,662.40 an ounce and copper prices added four cents to US$3.81 a pound.

The U.S. Commerce Department said new home sales fell 1.6 per cent last month to a seasonally adjusted annual rate of 313,000. Sales have fallen nearly seven per cent since December. But prices surged to their highest level in eight months, suggesting builders anticipate more demand in the months ahead.

Lingering concerns about the Chinese economy have sent investors to the greenback. On Thursday, a Chinese manufacturing index compiled by HSBC fell to 48.1 in March from 49.6 in February. Figures below 50 indicate that manufacturing is contracting.

Earlier this week, soft Chinese housing data and a warning from miner BHP Billiton also stoked concerns about the outlook in the world's second-largest economy, which has shored up the global economy over the past few years.