OTTAWA- Business sentiment in Canada has improved as COVID-19 restrictions have eased, though it remains "negative" with one-third of firms saying they do not expect sales to return to pre-pandemic levels within the next 12 months, a Bank of Canada survey showed on Monday.

The Bank of Canada's business outlook indicator improved slightly from the second quarter, but remained well below its historical average, signaling weak business sentiment.

"After many containment measures were lifted and business activity resumed over the summer months, firms now expect sales to increase from low levels," the Bank said.

However, "firms reported that their sales prospects are limited by weak demand and precautionary health guidelines, and that their investment and hiring plans remain modest due to elevated uncertainty."

The survey of 100 firms took place between August 24 and September 16, when COVID-19 cases were still lower in Canada. A second wave of new infections has led to targeted restrictions in certain hot spots. ((Reporting by Julie Gordon; editing by Steve Scherer; julie.gordon@tr.com;1-343-961-4020))