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A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch© Mark Blinch / Reuters/Reuters

The Canadian dollar rallied with equities as a victory for Justin Trudeau's Liberal Party spurred optimism that increased spending will help lift economic growth.

Trudeau's Liberals won a surprise majority mandate, putting an end to Conservative Prime Minister Stephen Harper's decade-long rule. Trudeau campaigned on a plan that included running C$25-billion ($19-billion) in deficits for three years to stimulate the economy with infrastructure spending, giving a boost to construction companies. Legalizing marijuana is also a part of the platform, sending shares of medicinal producers up.

"The Liberals are in the driver's seat," said Patrick Blais, a fund manager at Manulife Asset Management Ltd. on the phone from Toronto. His firm manages about C$280-billion. "The Liberals are known for governing from the middle so they will take a more pragmatic view. There will be a bit of an expanding budget. Overall the market will see it as a necessary change."

The benchmark Standard & Poor's/TSX Composite Index climbed 83.54 points, or 0.6 per cent, to 13,841.92 at 4 p.m. in Toronto, the biggest gain in almost two weeks. Equities have rallied 4 per cent in October as the benchmark gauge recovers from the worst quarter since 2011. Canada's dollar strengthened 0.3 per cent to C$1.2979 per U.S. dollar, having previously slipped to C$1.3047, the weakest level since Oct. 13. Canada's 2.25 per cent 10-year government bond lost 79 cents to trade at $106.34.

"There was a recalibrating of assumptions in the wake of the unexpectedly strong poll result of a clear majority," said Jeremy Stretch, head of fixed-income strategy at Canadian Imperial Bank of Commerce, by phone from London.

The election result is a vindication of Trudeau's campaign to reject Harper's budget restraint agenda, claiming the nation needs deficit spending to combat economic woes triggered by an oil-price collapse. Trudeau, 43, also used his youthful optimism to exploit a thirst for change.

Oil's Collapse

Trudeau's victory came as the collapse in the price of crude oil, Canada's largest export, tipped the country into a recession in the first half, forcing its central bank to twice cut interest rates to stimulate the economy. The loonie, as the currency is nicknamed, slumped to its weakest level in more than a decade in September, while bond yields dropped to a record earlier in the year and stocks plunged more than 16 per cent from an April high.

The S&P/TSX is recovering this month from the worst quarter since 2011. While data in recent weeks shows the economy has perked up, gross domestic product is projected to grow just 1.2 per cent this year, the worst performance since 2009.

Canadian equities tend to perform better over time under Liberal governments than they do under Conservative ones, according to data compiled by Bloomberg.

Stretching back to 1922 and the time of William Lyon Mackenzie King, Liberal prime ministers have posted stock returns three times higher than with Conservative leaders, according to monthly data to August 2015 compiled by Bloomberg from TMX Group Ltd., the operator of the Toronto Stock Exchange.

Engineering firms and medicinal marijuana producers have been the early beneficiaries in the stock market as investors anticipate changes from the incoming government.

Aecon Group Inc. climbed 5 per cent to a 13-month high, and SNC-Lavalin Group Inc. increased 1.4 per cent as engineering and construction companies rallied on the promises of more infrastructure spending. The S&P/TSX Industrials Index added 1.6 per cent for a second day of gains, paring the worst annual decline since 2008 to 8.1 per cent.

The Liberals pledge an average of C$4.2-billion of new spending on projects including bridges over the next four fiscal years starting in 2016 as the incoming government seeks to reverse a so-called technical recession with the economy shrinking in the first half of the year. Compared with Trudeau's plan for C$25-billion in deficits over the next three years, both Harper and New Democrat Tom Mulcair had pledged balanced budgets.

Marijuana Stocks

Marijuana stocks climbed. Smaller peers Aphria Inc. and Mettrum Health Corp. rallied more than 5.3 per cent. Canopy Growth Corp. erased a gain of as much as 21 per cent late in the afternoon. The stock has jumped 24 per cent this month.

"There's a chance for that to continue to run," said Kash Pashootan, a fund manager at First Avenue Advisory of Raymond James Ltd. in Ottawa. His firm manages about C$230-million. "(Canopy Growth) really ran up coming into the election. There's still more upside there as the masses realize this will be one of the areas that really benefits given the Liberals' view on marijuana and the industry."

Trudeau's platform calls for removing marijuana offenses from the criminal code and drawing up new rules for selling and taxing the drug. By contrast the Conservatives had upheld restrictions on recreational cannabis use during their almost decade-long reign.

With the election decided, attention now turns to the Bank of Canada's next interest rate decision on Wednesday. The central bank will keep its benchmark lending rate at 0.5 per cent, when it also releases its quarterly economic outlook, according to the median prediction of economists in a Bloomberg survey. The loonie will weaken to C$1.34 per U.S. dollar by year-end, before rebounding to C$1.32 by the end of 2016, strategists predict.

"The outcome, the fact that it was a majority, changes a lot of things and probably gives us a lift from a growth point of view," said Andrew Pyle, fund manager at ScotiaMcLeod Inc. in Peterborough, Ontario. His team manages about C$300-million. "The fact you have a majority government gives some stability in the market. There will be winners on the infrastructure front."

–With assistance from Doug Alexander and Ari Altstedter in Toronto.