TORONTO(Reuters) - Canadian industry is taking a bruising from the country's strong dollar, but it is short-term pain for long-term gain as weaker players are sifted from the corporate mix.This past week the Canadian currency, colloquially referred to as the loonie, hit three-decade highs against the US dollar. That exacts a big toll on the manufacturing sector and makes exports costlier, but the adjustment process is bound to benefit the sector.

If anything, observers say, the lofty loonie will separate the wheat from the chaff and adaptable, efficient companies will be left standing.

"If all you were relying on to be competitive was a cheap currency then you're probably not a great investment in the first place, which is not necessarily a truth universally well received," said Gavin Graham, chief investment officer at Guardian Group of Funds.

"We've been used to living with a weak currency. For 20 odd years, it went from a buck to 62 cents with occasional reversals. So there's an entire generation grown up expecting the loonie to be weak."

The Canadian dollar has risen about eight percent in recent months and touched a 29-[1/2] year around 92 US cents this week on a combination of a strong economy, rising oil prices, M&A activity and hopes of rising interest rates.

The currency closed North American trade at C$1.0794 to the US dollar, or 92.64 US cents, Friday. The rally has prompted some talk of parity with the greenback. Parity was last seen in November 1976.

For manufacturers, the latest upturn in the currency, which is up nearly 50 percent against the greenback in five years, is yet another burden.

"It's put this organisation in a very high stress situation," said Gaetan Bolduc, chief executive of Prevost Car in Sainte-Claire, Quebec, which makes coaches and bus shells.

"But what we're trying to do here is to re-question our ways of doing things. I have fun when I hear companies that export start talking about lean manufacturing. We started that in 1995. I'm not sure if someone who just entered that world today would make it."

But it's not just the currency that's hurting the manufacturing sector. Soaring energy and commodity prices add to the pain, while concern about a slowdown in the United States, Canada's biggest export market, has deepened the gloom.