For the year, real gross domestic product grew 3.1 percent, following a 2.5 percent decline in 2009, Statistics Canada said in a statement.

Both beat expectations.

The central bank had forecast economic growth of 2.9 percent in 2010 before slowing to 2.4 percent this year, while analysts predicted only 3.0 percent fourth-quarter growth following a dismal third quarter.

Higher exports -- up 4.0 percent -- contributed the most to the fourth-quarter rally, Statistics Canada said.

Consumer spending increased 1.2 percent in the quarter.

Businesses reduced inventories by CAN$5 billion (US$5.1 billion) after strongly building them up in the previous two quarters, and invested more on plants and equipment.

All major industrial sectors, except manufacturing, increased their output in the fourth quarter.

The largest contributing sector was mining and oil and gas extraction. The public sector (education, health services and public administration combined), wholesale and retail trade, real estate and construction also contributed to the overall increase.

Manufacturing, however, declined following five consecutive quarterly increases.

Investment in housing also fell for the second time in a row.