CANADA FX DEBT-C$ weakens after Canada's GDP data disappoints
* Canadian dollar at C$1.3071, or 76.51 U.S. cents * Bond prices mixed across the maturity curve By Fergal Smith TORONTO, May 31 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday after Canada's economy accelerated less than forecast, while firm U.S. economic data supported the view that the Federal Reserve could raise interest rates as early as June. Canada's gross domestic product (GDP) grew at a 2.4 percent annualized rate in the first quarter, shy of analysts' expectations for 2.9 percent. Moreover, a deeper than expected 0.2 percent drop in March GDP left a weak starting point for the second quarter. "It is going to make the Bank (of Canada) cautious, but they are probably going to see some sizable swings in the GDP numbers in the next couple of quarters, reflecting the shifts in oil production," said Paul Ferley, assistant chief economist at Royal Bank of Canada. The central bank has already signaled a likely contraction in second quarter growth after wildfires disrupted oil production in Alberta. At 9:19 A.M. EDT (1319 GMT), the Canadian dollar was trading at C$1.3071 to the greenback, or 76.51 U.S. cents, weaker than Monday's close of C$1.3051, or 76.62 U.S. cents. The currency's strongest level of the session was C$1.3016, while its weakest was C$1.3083. U.S. crude prices were up 0.43 percent to $49.54 a barrel, helping to limit losses for the commodity-linked Canadian dollar. U.S. consumer spending recorded its biggest increase in more than six years in April and inflation rose steadily, more signs of an acceleration in economic growth that could persuade the Federal Reserve to raise interest rates again as early as June. Canadian government bond prices were mixed across the maturity curve, with the two-year price flat to yield 0.653 percent and the benchmark 10-year falling 19 Canadian cents to yield 1.373 percent. The Canada-U.S. two-year bond spread was 4.6 basis points more negative at -27.7 basis points, while the 10-year spread was 3.1 basis points more negative at -51.3 basis points as Treasuries underperformed. (Reporting by Fergal Smith; Editing by Chizu Nomiyama)
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