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* C$ at C$1.0332 vs US$, or 96.79 U.S. cents * Day 2 of U.S. government shutdown spurs investor unease * Bond prices higher across curve By Leah Schnurr TORONTO, Oct 2 (Reuters) - The Canadian dollar weakened against the greenback on Wednesday as a government shutdown in the United States continued for a second day with few signs lawmakers were making any progress. The political stalemate south of the border has prompted the first U.S. federal government shutdown in 17 years, forcing hundreds of thousands of employees to take unpaid leave, and investors were concerned about what impact the impasse will have on the still-fragile economic recovery. Congressional leaders were scheduled to meet with President Barack Obama later on Wednesday, though both sides said the meeting was unlikely to end the shutdown. Analysts said a shutdown that drags on longer than a few days will start to bite into economic growth in the United States, Canada's biggest trading partner. "The longer this goes on, the weaker the U.S. economy is going to end up being, and that's going to weigh on Canada as well," said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets in Toronto. The Canadian dollar ended the session at C$1.0332, or 96.79 U.S. cents, weaker than Tuesday's close of C$1.0325, or 96.85 U.S. cents. For the most part, the loonie has been trading in a range since early September and analysts expect that to continue for now. "That C$1.03 range that we're sitting in right now arguably looks like it's a limbo zone," said Ian Pollick, fixed income strategist at RBC Capital Markets in Toronto. "A lot of people are expecting that the shutdown isn't going to last too long." Still, the shutdown cast uncertainty on two other points of focus for markets: the looming deadline to raise the U.S. debt ceiling and what influence that could have on central bank policy. The next big political battle lawmakers face is raising the $16.7 trillion U.S. debt ceiling by mid-October. Failure to do so would force the United States to default on some payment obligations, and the inability of U.S. politicians to end the government shutdown has stoked concerns about their ability to come to an agreement on debt. While the political wrangling has shifted some attention away from monetary policy, analysts were also trying to gauge what impact a lengthy shutdown might have on the U.S. Federal Reserve's efforts to prop up the economy. The central bank surprised markets last month by maintaining the amount of assets it is buying in its stimulus program at $85 billion a month. Analysts were speculating that the fiscal drag on the economy spurred by the shutdown could prevent the Fed from reducing its bond purchases as soon as had been expected. In a speech that did not touch on the outlook for the U.S. economy or monetary policy, Fed Chairman Ben Bernanke said on Wednesday the Fed is being careful not to place too great a burden on smaller banks as it seeks to beef up regulation of the financial system. Separately, Boston Fed President Eric Rosengren said the shutdown could delay the Fed's withdrawal of bond purchases because the government is not producing official data on the economy. Prices for Canadian government bonds were higher across the maturity curve. The two-year bond was up 2.8 Canadian cents to yield 1.186 percent and the benchmark 10-year bond added 11 Canadian cents to yield 2.548 percent.