OTTAWA - The Canadian economy showed signs of revival at the end of last year, a welcome signal that the sharp slowdown of the fall may have been a temporary setback in a slow-moving recovery.

The country's gross domestic product grew 0.4 per cent in December -- after the surprising 0.1 per cent dip of November -- posting a 1.8 per cent annualized gain for the final quarter of 2011.

That's slightly weaker than the Bank of Canada's call, but the miss was more than compensated for by an upward revision of third-quarter growth to 4.2 per cent from the previously reported 3.5 per cent.

"Overall, the economy has slightly less slack than the Bank of Canada expected, and the markets may begin to more fully believe the bank when it talks of 'a gradual reduction in monetary stimulus over the projected horizon'," said Douglas Porter of the Bank of Montreal in a note to clients.

For the year as a whole, the economy rose by 2.5 per cent, down from 3.2 per cent in 2010, but much better than what economists were predicting a few months ago.

The markets have been buoyed by a sudden spate of positive signals after months of doom and gloom, as well as trepidation that the European sovereign debt crisis could implode.

Earlier in the week, the U.S. -- Canada's closest economic partner and a key for exporters -- revised its fourth-quarter growth up to three per cent in another indication that fears of a woeful 2012 are receding.

CIBC economist Emanuella Enenajor said December's strong hand-off suggests that the first three months of this year will also prove surprisingly brisk.

"The on-consensus print did little to move markets immediately," she said, but "the better-than-expected detail could support the Canadian dollar mildly."

Among the positive details, consumption accelerated, as did business capital spending, and exports were robust.

On the other side of the ledger, there were few weak points.

"The most interesting aspects of the report are the things which didn't happen -- consumption didn't fall markedly, the government did not impose a fiscal drag on the economy and exports grew in spite of a global economic slowdown," added Dov Zigler, a financial markets economist with Scotiabank.

Still, analysts said it was too early and conditions are still too soft and uncertain to materially affect the Bank of Canada's thinking on interest rates. Analysts are unanimous the bank is on hold for some time and will keep the policy rate at one per cent, where it's been since September 2010, at the next scheduled policy date on March 8.

Among other details of the report, all major industrial sectors grew in 2011, except arts, entertainment and recreation.

Production of goods grew 3.6 per cent while services expanded 2.2 per cent. Mining and oil and gas extraction, construction, the public sector (education, health services and public administration combined) and manufacturing were the main contributors to overall growth.

Meanwhile, housing investment slowed to 0.8 per cent in the quarter, as did renovations.