Q2 growth led by government spending, business investments
June economic growth flat, likely unchanged in July
Markets expect 25 basis point cut by BoC next month

OTTAWA, Aug 30 Reuters Canada39;s economy grew faster than expected in the second quarter, led by government expenditure, increased business investments and consumers spending higher on services, data showed on Friday.

The annualized gross domestic product on a quarter on quarter basis rose 2.1, Statistics Canada said. But on a per capita basis, GDP continued to contract for a fifth consecutive quarter.

The GDP figure is the last data set before the Bank of Canada39;s monetary policy decision announcement on Sept. 4 when it is widely expected to cut its benchmark rate for the third time in a row.

Financial markets now see an 80 chance of another 25 basis point cut in rates on Sept. 4, up from 77 before the data were released. They also forecast two more rate reductions this year after September.

The Canadian dollar slightly extended its gains for the day, rising 0.1 to C1.3467 to the U.S dollar, or 74.26 U.S. cents.

Analysts polled by Reuters had forecast GDP growth of 1.6 for the second quarter on an annualized basis and growth of 0.1 month over month in June.

On a monthly basis, GDP growth was unchanged in June and an advance estimate for July shows yet another month of flat growth, Statscan said.

Economic growth for the first quarter was revised to 1.8 from 1.7 reported earlier in May, it said….