OTTAWA (Reuters) - The Bank of Canada raised its key interest rate yesterday, as expected, but warned the domestic and global recovery will be slower than it had previously forecast, suggesting any further hikes may be gradual.

The bank last month became the first in the Group of Seven advanced economies to raise rates from the emergency lows introduced during the global crisis. It took a second step yesterday by lifting borrowing costs another 25 basis points to 0.75 percent.

Canada's blistering growth rate and jobs growth had led primary securities dealers to unanimously predict another rate hike, putting Canada leagues ahead of the US Federal Reserve and other G7 central banks who are not yet ready to end the era of easy money.

But its hawkish stance on rates contrasted sharply with the dovish language in its accompanying statement. It shaved its growth forecast for the Canadian economy this year to 3.5 percent from 3.7 percent and said efforts to tackle the European debt crisis would slow the pace of the global rebound.

"Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments," the bank said in its announcement.