* Cites Europe, U.S. woes as backdrop for policy shift
* Sees Canadian growth resuming in second half of year
* Says inflation pressures dampened
* Cdn dollar gains, markets pare rate cut expectations (Adds details)
By Louise Egan and Randall Palmer
OTTAWA, Sept 7 (Reuters) - In a dramatic policy shift, the Bank of Canada said on Wednesday it saw less need to raise interest rates, becoming the latest major central bank to take a more cautious stance about the worsening global economy.
The bank held its overnight rate unchanged at 1 percent, where it has been for the past year, and took its previous talk of a rate hike off the table.
"In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished," the central bank said in a statement.
In its July interest rate announcement, the bank said stimulus "will be withdrawn" provided the economy kept growing, leading markets to expect a rate hike later this year.
That forecast looks outdated now, given the European debt crisis, slowing U.S. growth and volatile markets.
Investors were not surprised by the more dovish tone, although many had expected a sharper policy reversal. Most economists still expect the next move in rates to be up rather than down, but it could be a year or more before that happens, and the bank's cautious language left the door open to an eventual move in either direction.
Goldman Sachs this week became the first major financial institution to forecast a Canadian rate cut later this year.
"There is really not much hint that the bank is considering cutting rates, but at the same time, they've pretty much put rate hikes firmly on the shelf," said Doug Porter, deputy chief economist at BMO Capital Markets.
Courtesy of Reuters
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