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* C$ at C$0.9867 vs US$, or $1.0135 * U.S. earnings season, mixed European data breed caution * In quiet trade, France downgrade rumor weighs on currency By Alastair Sharp TORONTO, Jan 8 (Reuters) - The Canadian dollar weakened slightly against its U.S. counterpart on Tuesday, as caution reigned ahead of the North American earnings season. The currency appears unlikely to gain regardless of whether U.S. corporates deliver stellar results or miss on muted expectations in coming weeks. "While money may be leaving the U.S. markets, I don't think it'll necessarily find Canada, giving our trade linkages, as a particularly attractive destination," said Don Mikolich, executive director for foreign exchange sales at CIBC World Markets. He said that the euro would likely benefit if the numbers point to a faltering recovery, while robust earnings would still find it difficult to push the Canadian dollar below C$0.98. The Canadian dollar ended the session trading at C$0.9867 to the greenback, or $1.0135, compared with C$0.9857, or $1.0145, at Monday's North American close. It had earlier weakened on speculation, later denied by officials, that France's sovereign debt rating may get downgraded. "It's not the first time we hear these kind of rumors going around, it's just that there isn't much for the market to focus on at the moment," said Audrey Childe-Freeman, global head of foreign exchange strategy at BMO Capital Markets in London. CIBC's Mikolich agreed. "People are paying attention to some of the overseas news: where Japan's monetary policy is heading is of some interest, European news continues to trickle out here and there, but nothing is the barn-burner item right now," he said. Business morale in the euro zone improved again in December, but unemployment hit a record and households held back from spending before Christmas, suggesting the bloc's emergence from recession will be slow. BMO's Childe-Freeman said that while Canada's domestic outlook compares favorably to both the U.S. and Australian economies, investors have chosen the Australian currency as a growth proxy for its closer ties to the improving Chinese market. She sees the Canadian currency trading between C$0.98 and equal value to the U.S. dollar in the next couple of months, notwithstanding an early return to the drama of U.S. fiscal cliff and debt ceiling talks or signs that Canada's central bank will hike rates sooner than expected. The two-year bond was up 8 Canadian cents to yield 1.166 percent, while the benchmark 10-year bond rose 27 Canadian cents to yield 1.911 percent.