(Adds economist comments, background, market reaction)
OTTAWA, March 21 (Reuters) - Canadian retail sales rebounded in January with the largest gain in nearly seven years as spending rose across most sectors, boosting expectations that economic growth picked up at the start of the year.
Sales rose 2.2 percent, Statistics Canada said on Tuesday, well above economists' expectations for 1.1 percent and the largest increase since March 2010. Stripping out the effects of price changes, volumes rose 1.3 percent.
After unexpectedly strong wholesale trade and manufacturing figures, the retail sales report puts economic growth on track for around 3.0 percent in the first quarter, economists said. That would top the Bank of Canada's forecast for 2.5 percent.
"The Canadian economic indicators have all been pointing in one direction: up," said Nick Exarhos, economist at CIBC.
The Canadian dollar extended gains against the greenback immediately following the report and was recently at C$1.3276 or 75.32 U.S. cents.
The central bank downplayed fourth-quarter strength in its statement earlier this month but it may be difficult for policymakers to continue to do so, economists said.
"After a strong end to 2016, it appears as though the economy is off to a good start in 2017," said Benjamin Reitzes, senior economist at BMO Capital Markets. "It's going to be awfully hard for the Bank of Canada to look through this better performance."
The Bank of Canada held rates at 0.5 percent at its March 1 meeting, citing "significant uncertainties" facing the economy.
Retail sales were up in 10 out of 11 sectors in January, accounting for 98 percent of retail trade. The motor vehicle and parts industry rose 3.8 percent, making for the fourth gain in five months as sales rose at new and used car dealers.
Excluding autos, retail sales were up 1.7 percent.
Four sectors recovered from weak December sales, including a 6 percent jump at health stores and a 1.8 percent increase at general merchandise stores.
Consumer spending was strong across the country, with retail sales up in every province.
Sales rose 2.4 percent in Alberta, which has been hurt by the drop in oil prices. It was the fifth time in six months sales were up in the province, which has a large energy industry.
Canada was in a brief recession in 2015 as oil prices tumbled and the economic recovery was interrupted by wildfires in northern Alberta that hit growth in 2016 but economists think Canada may be now be turning the corner.
Reporting by Leah Schnurr; Editing by W Simon and Andrea Ricci