CANADA FX DEBT-C$ hits 3-week low as data shows April economic setback
* Canadian dollar at C$1.2419, or 80.52 U.S. cents * Bond prices mostly higher, long-dated bonds slip By Alastair Sharp TORONTO, June 30 (Reuters) - The Canadian dollar fell to its weakest against the greenback in three weeks on Tuesday after data showed a surprise economic contraction to start the second quarter. Canadian economic growth unexpectedly edged down 0.1 percent in April, hurt by a decline in activity in mining and oil and gas extraction, data from Statistics Canada showed. The Canadian dollar was at C$1.2419 to the greenback, or 80.52 U.S. cents, at 9:10 a.m. EDT (1310 GMT), weaker than Monday's close of C$1.23.92, or 80.70 U.S. cents. At one point it touched C$1.2434, its weakest level since June 9, as traders calculated the Bank of Canada's likely policy reaction. "The numbers mitigate or argue against the (Bank of Canada Governor Stephen) Poloz line that he's been highlighting over recent months regarding the downturn being essentially front-loaded or certainly likely to be contained by the end of Q1," said Jeremy Stretch, head of foreign exchange strategy at CIBC World Markets in London. Stretch said the Canadian currency could weaken further and even test C$1.30 if signs of a U.S. Federal Reserve rate hike in September get stronger. Canadian government bond prices were higher except at the very long end, with the two-year price up 9 Canadian cents to yield 0.519 percent and the benchmark 10-year rising 2 Canadian cents to yield 1.735 percent. The 10- and 20-year issues slipped. The Canada-U.S. two-year bond spread was -13 basis points, while the 10-year spread was -61.2 basis points. (Editing by Peter Galloway)
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