TORONTO (Reuters) — Higher interest rates might suggest a slide in stocks, but the Canadian economy is just too strong and the Bank of Canada's credit-tightening campaign too mild to cause much concern for the Toronto market.Rising interest rates are considered negative for equity markets because they raise corporate borrowing costs and because they can weigh on earnings as demand from consumers and businesses drops.

The Bank of Canada raised its overnight rate by 25 basis points to 4.50 percent last Tuesday, its first hike since May 2006. Most analysts expect one more quarter-point increase this year as the central bank looks to cool the Canadian economy.

But it's the reasons behind the latest rate hike that economists say will allow the Toronto Stock Exchange's S&P/TSX composite index to resist conventional wisdom and remain at record high levels. "The overall impact on the market will depend not only on the higher rates themselves but why those rates are going up," said David Wolf, an economist with Merrill Lynch.

"So if rates are rising in response to a strong economic situation, then that may, and in fact seems to have, offset the direct impact of those higher rates on the market as a whole."

The Canadian economy has been a consistently strong performer with an unemployment rate that remains at a 33-year low of 6.1 percent and no serious danger signs flashing on the horizon.

That bodes well for the financial services sector, which makes up about a third of the Toronto Stock Exchange's key index and is thought to be the most rate-sensitive sector.