CANADA FX DEBT-C$ up as bank holds tightening stance
* C$ firms against US$ at C$1.0136 * Central bank still leans toward rate hike * Market eyes U.S. Fed comments * Bonds mostly lower across curve By Jennifer Kwan TORONTO, July 17 (Reuters) - The Canadian dollar edged slightly higher against its U.S. counterpart on Tuesday as the Bank of Canada held rates steady but maintained its tightening bias. Against the greenback, Canada's currency firmed to C$1.0136, or 98.66 U.S. cents as the central bank made clear it still expected to nudge rates up before too long, even as other central banks ease monetary policy to cope with damaging economic slowdowns. Markets had been focused on whether the central bank will repeat, dilute or omit the message that it may soon need to raise the rate. "I think part of what's behind the bank's language is that they simply do not want the market pricing in rate cuts and they continue to show that that's just not part of their play book at this stage," said Doug Porter, deputy chief economist at BMO Capital Markets. "The market is interpreting the talk as being a little tougher than expected and so we've seen just ... a little bit of strengthening in the Canadian dollar," he said. Higher interest rates tend to help a country's currency appreciate because they often attract international capital flows. On Monday, the Canadian dollar ended at C$1.0147 against the U.S. dollar, or 98.55 U.S. cents. The market is also keeping tabs on the U.S. Federal Reserve with global shares and the euro edging up as investors speculated that Fed Chairman Ben Bernanke would hint at more monetary stimulus later in the day. Bernanke begins the first leg of a two-day testimony to U.S. lawmakers at 10 a.m. (1400 GMT) on Tuesday and is expected to be pressed on whether the central bank is close to launching a third round of large-scale asset purchases, known as quantitative easing or 'QE3', and what other tools it might consider using. "The risks today were significant on both the fundamental domestic side as well as the U.S. data side, as well as the central banking side. I think the markets are really waiting for the U.S. Fed," said Camilla Sutton, chief currency strategist at Scotiabank. Against the euro, the Canadian dollar traded near a record high at around C$1.2449, or 80.33 euro cents. Canadian bond prices were mostly lower across the curve on Tuesday with the 10-year bond yield at 1.632 percent. The two-year government bond yielded around 0.978 percent.
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