Despite the Tory win in Monday's election, the Canadian dollar fell sharply Tuesday after the Bank of Canada raised its trend-setting rate.

Analysts say the dollar fell because investors, who had hoped for a majority Tory government, are disappointed with the minority result. The Tories are largely favored by Canada's financial community because of their support for corporate tax cuts, among other economic policies.

"The market is probably a bit disappointed that we have a Conservative minority and that the number of seats is small enough that we may not see very much in terms of policy changes," said Canadian market strategist Kate Warne.

The Bank of Canada raised its key rate by one-quarter of a percentage point to 3.5 percent and hinted of more modest rate increases to come.

In an accompanying statement, the central bank suggested it was nearing the end of its tightening cycle and analysts said only two more rate increases were expected this year.

Late morning, the loonie was trading at 86.45 cents US, down 0. 56 of a cent from Monday's close, its second-highest in almost 15 years.

Toronto's S&P/TSX composite index moved 21.05 points lower to 11,712.32 on energy and gold declines. On Monday, the Toronto stock market had run up almost 128 points to another record close of 11,733.37.

The Canadian dollar was worth 85.62 cents US when the Liberal minority government fell on Nov. 28 and hit a 14 1/2-year closing high of 87.21 cents on Jan. 4.

Source: Xinhua