09/17/2013 09:00 EDT | Updated 11/17/2013 05:12 EST

Loonie climbs against weak U.S. dollar as two day Fed meeting gets underway

TORONTO - The Canadian dollar was slightly higher Tuesday, as all eyes turn to the U.S. Federal Reserve as it begins a significant two-day policy meeting that will likely spell a pullback of its unprecedented stimulus funding.

The loonie jumped 0.28 of a cent to 97.13 cents US.

The Fed has been buying US$85 billion a month in Treasurys and mortgage bond purchases as part of an effort to keep long-term loan rates low, which in turn, has helped boost stock markets as more people invest.

For the past few months, the U.S. central bank has warned that the stimulus will eventually run out on signs that the economy is faring well again.

This tapering of asset purchases could happen as early as Wednesday at the conclusion of the meeting.

Most economists expect the Fed to pull back gradually and anticipate the first move will be somewhere between US$10 billion or US$15 billion.

This uncertainty of the Fed policy has weakened the U.S. dollar in the last week or so, which has helped the Canadian dollar gain some strength.

Statistics Canada says manufacturing sales rose 1.7 per cent to $49.5 billion in July — far better than analysts had expected. It says gains were recorded in 15 of 21 industries.

The agency says sales of durable goods rose 2.1 per cent to $24.8 billion, mostly due to higher sales in the miscellaneous manufacturing, fabricated metal product and wood product industries.

Overseas, two economic releases out of Europe showed mixed results.

Germany's index of economic optimism among investment professionals rose more than expected in September, underlining stronger growth prospects in Europe's largest economy.

The ZEW rose to 49.6 points from 42 in August. Market analysts had expected an increase to 45. The rise is being attributed to eased fears of both a crisis over high public debt or a government default.

The eurozone returned to modest growth of 0.3 per cent in the second quarter, while Germany had a more robust expansion at 0.7 per cent. The survey remains above its long-term average of 23.8.

But the European Auto Manufacturers' Association reported that car sales in Europe were still sagging. For the first eight months of the year, passenger car sales in the European Union were off 5.2 per cent to 7.84 million compared with the same period last year. That's the lowest January-August figure since the group started keeping track in 1990.

Meanwhile, commodities were negative as the October crude contract dipped $1.17 to US$105.42 a barrel. December bullion fell $8.40 to US$1,309.40 an ounce, while December copper was unchanged at US$3.22 a pound.