(Recasts lead, adds reaction, details, Canadian dollar strengthening)
By David Ljunggren
OTTAWA, March 31 (Reuters) - The Canadian economy expanded by a healthy 0.6 percent in January from December, indicating first-quarter growth will be stronger than expected as the country gradually recovers from the shock of low oil prices.
Statistics Canada said on Friday that gross domestic product grew amid widespread expansion in goods and services-producing industries. The increase, the seventh in the past eight months, was double the 0.3 percent forecast by analysts in a Reuters poll.
The Bank of Canada, which cut rates twice in 2015 and has consistently stressed the downside risks to the economy, predicted in January that first quarter annualized growth would be 2.5 percent.
But even if the economy does not grow at all in February and March, January's data indicates the first quarter will be better than the bank is forecasting.
"This puts GDP tracking for the first quarter firmly above 3 percent. It is still early, but all in all there is a lot to like in this report," said Andrew Kelvin, senior rates strategist at TD Securities.
"It really makes it hard to imagine the Bank of Canada sounding overly dovish in April," he said in a phone interview.
The central bank - which cut rates twice in 2015 to counter the effect of slumping crude prices - is due to issue its next rate decision and updated economic forecasts on April 12. Most economists do not expect a rate hike until 2018.
The Canadian dollar strengthened on the data, hitting C$1.3290 to the U.S. dollar, or 75.24 U.S. cents, up from C$1.3337, or 74.98 U.S. cents, just before the release.
January's month-on-month expansion was the greatest since the 0.6 percent seen in June 2016.
Manufacturing in January grew 1.9 percent on strength in virtually every sector while mining, quarrying and oil and gas extraction also expanded by 1.9 percent.
Wholesale trade increased 2.4 percent, the largest monthly gain since July 2013, lifted by higher imports and exports of motor vehicles and parts. Retail sales grew by 1.5 percent.
Bank of Canada Governor Stephen Poloz on Tuesday defended his cautious outlook, saying it was important to focus on risks even as recent data releases showed signs of recovery.
Additional reporting by Fergal Smith in Toronto; Editing by Lisa Von Ahn and Bernadette Baum