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* C$ at C$1.0222 vs US$ or 97.83 U.S. cents * Fed keeps bond buys at $85 billion a month * Canadian bond prices higher By Leah Schnurr TORONTO, Sept 18 (Reuters) - The Canadian dollar strengthened to a three-month high against its U.S. counterpart on Wednesday after the Federal Reserve surprised markets by holding steady the pace of its economic stimulus program. The Fed maintained its $85 billion a month in bond purchases, defying many investors' expectations that the central bank would announce a small reduction of about $10 billion. After trading in a tight range for much of the day, the Canadian dollar firmed to as high as C$1.0201 in the wake of the Fed statement, the highest intra-session level since mid-June. The U.S. central bank expressed concerns that a recent sharp rise in borrowing costs could weigh on the economy and cut its economic growth projections for 2013 and 2014. "It's come as a real shock they've left (policy) on hold," said Gareth Sylvester, director at Klarity FX. "That's certainly going to help the risk-on sentiment in the marketplace." The Fed's bond purchases - known as quantitative easing - have been a major driver of gains in equities and other so-called risky assets this year. Wednesday's announcement pushed the greenback broadly lower, with the dollar index down 1.3 percent. The Canadian dollar ended the session at C$1.0222 to the U.S. dollar, or 97.83 U.S. cents, stronger than Tuesday's session close of C$1.0295, or 97.13 U.S. cents. Investors also took in comments from Canada's own central bank head. Bank of Canada Governor Stephen Poloz struck an upbeat note predicting the Canadian economy would start to pick up and its potential for growth increase as the U.S. recovery strengthens. Poloz spoke before the Fed's announcement. The Fed's decision to keep its stimulus unchanged could have some impact on investors' perceptions of when the Bank of Canada will resume raising rates, Sylvester said. The Bank of Canada has held rates at 1 percent since September 2010. "Poloz has put an emphasis on the state of the U.S. recovery in saying that Canada will benefit should growth increase in the U.S.," he said. "If we're now having a revision to the U.S. economic outlook, that's going to have a mild negative bias onto the Canadian economy as well, which is going to raise the question are they in a position to raise rates just yet?" Prices for Canadian government bonds rose across the maturity curve, with the two-year bond up 4 and a half Canadian cents to yield 1.238 percent, and the benchmark 10-year bond rising 65 Canadian cents to yield 2.691 percent.