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* C$ at C$1.0334 vs US$, or 96.77 U.S. cents * Sharp swings in yen create havoc elsewhere * Weak China data, Bernanke's easing comments add to worry By Alastair Sharp TORONTO, May 23 (Reuters) - The Canadian dollar won back some slight gains against its U.S. counterpart early on Thursday after sinking to an almost 12-month low a day earlier, as volatility reigned in currency markets. The Japanese yen rallied sharply against the U.S. dollar and the euro after a shock drop in Chinese factory data hurt stock markets, while the Canadian went along for the ride. "The Canadian dollar is caught in a nasty move in global markets," said Adam Button, currency analyst at ForexLive in Montreal. He said correlations between asset classes had broken down and investors were struggling to guess where markets go from here. "It's walking on a razor's edge right now. It's 24 hours of fright, after three months of exuberance," said Adam Button, currency analyst at ForexLive in Montreal. "It could prove to be a turning point, or a blip. At this point, I lean more towards a turning point, and continued Canadian dollar weakness." The loonie, as the Canadian currency is colloquially known, has fallen almost four cents since it neared equal value with the greenback in early May. By mid-morning it was trading at C$1.0334, or 96.77 U.S. cents, after ending Wednesday's North American session changing hands for C$1.0372 to the greenback, or 96.41 U.S. cents. Prices for Canadian government debt were higher across the curve. The two-year bond was up one and a half Canadian cents to yield 1.025 percent, while the benchmark 10-year bond rose 25 Canadian cents to yield 1.942 percent. The loonie gained marginally against the Australian dollar , another commodity currency, but one that is more closely tied to the fortunes of China due to geographical proximity. A preliminary survey of manufacturing in the world's second largest economy showed it shrunk in May for the first time in seven months. Meanwhile, comments from U.S. Federal Reserve chairman Ben Bernanke that monetary stimulus could be scaled back also added to investor caution worldwide.