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* C$ ends at 99.32 U.S. cents in see-saw session
* Bonds prices soften across curve (Updates to close)
By Claire Sibonney
TORONTO, Nov 3 (Reuters) - The Canadian dollar rose against its U.S. counterpart in a volatile session on Wednesday, keeping parity in sight after a brief slip, as markets absorbed the Federal Reserve's bold push to breathe life into a struggling U.S. economy.
After months of speculation, the Fed launched a risky new policy to buy $600 billion more in government bonds, aimed at further lowering borrowing costs for consumers and businesses still suffering from the financial crisis. [ID:nN03287174]
Markets were generally priced for the Fed initially to commit to buying at least $500 billion in U.S. Treasuries over several months.
While U.S. stocks got a small lift and the greenback softened in reaction, longer-dated Treasuries sold off.
"There doesn't seem to be a lot of conviction here," said Shaun Osborne, chief currency strategist at TD Securities.
Osborne noted that with U.S. bond yields grinding higher it's going to be difficult for the U.S. dollar to sustain its current weakness.
"While the (U.S.) dollar might stay quite soft in the short run, I don't think this is perhaps the trigger for a further immediate selloff," he said.
The Canadian dollar see-sawed in erratic trade following the announcement, hitting both session highs and lows.
The currency finished at C$1.0068 to the U.S. dollar, or 99.32 U.S. cents, up from Tuesday's close of C$1.0095 to the U.S. dollar, or 99.06 U.S. cents.
"We'll see what the overnight market does but I won't be at all surprised to see some (U.S. dollar) short-covering pushing us back towards the C$1.01 area over the course of the next few hours," Osborne added.
Overall, the Canadian dollar is expected to gain momentum against its struggling U.S. counterpart and trade around parity for much of the next year, supported by strong fundamentals, a Reuters poll showed on Wednesday. [ID:nN03102293]
Earlier, investors were also assessing the potential impact of U.S. midterm election results on riskier investments, after Republicans took control of the House of Representatives and weakened the Democratic majority in the Senate. [ID:nUSVOTE]
"With the Republican victory there are some positives for the U.S. dollar, mostly being fiscal restraint," said Tom Nakamura, fixed-income portfolio manager at AGF Investments.
"On the negative side ... it might mean that the Fed has to do more of the heavy lifting in terms of stimulus for longer, which would weigh on the U.S. dollar. What it comes down to for the Canadian dollar is what is good for the U.S. economy in the long term."
Canadian government debt prices were little changed as investors bet the Fed's decision had already been priced in.
"This is potentially the last sort of pump of the bond bubble inflating here so it's hard to see long term rates in the U.S. dropping significantly further than they have already," said Osborne.
The two-year bond CA2YT=RR gained half a Canadian cent to yield 1.421 percent, while the 10-year bond CA0YT=RR was flat to yield 2.874 percent.
In new issues, Canada's auction of five-year bonds met with firm demand before the Fed's announcement even as the belly of the curve, which has benefited from easier monetary policy, is seen getting expensive for investors. [ID:nN03110651] (Reporting by Claire Sibonney; editing by Rob Wilson)