* Bank of Canada raises rate, sees slower recovery
* C$ jumps to 96.14 U.S. cents
* Bonds fall as BoC statement more balanced than expected (Updates with comment after rate decision)
By Ka Yan Ng
TORONTO, Sept 8 (Reuters) - The Canadian dollar jumped against the U.S. currency on Wednesday after the Bank of Canada raised interest rates and left the door open for further rate hikes, while bonds turned sharply lower.
The Bank of Canada raised its benchmark interest rate by 25 basis points for a third time this year, bringing the rate to 1 percent, but it cautioned that a weak U.S. economy would hamper Canada's recovery. For more see [ID:nBCL8KE615].
Still, market analysts found the statement to be more balanced than expected, lighting a fire under the currency and sparking a selloff in bonds.
"The view was that there was going to be more of a signal of a pause (in rate hikes) at the next fixed announcement date and the market didn't get it," said Derek Burleton, deputy chief economist at TD Bank Financial.
At 9:35 a.m. (1335 GMT), the Canadian dollar CAD=D4 was at C$1.0402 to the U.S. dollar, or 96.14 U.S. cents, more than three-quarters of a cent higher than its level just before the policy announcement. It was also up from Tuesday's close of C$1.0480 to the U.S. dollar, or 95.42 U.S. cents.
The two-year Canada bond CA2YT=RR dropped 18 Canadian cents to yield 1.362 percent, while the 10-year bond CA10YT=RR fell 72 Canadian cents to yield 3.012 percent.
The rate decision was one of the closer calls for the central bank in some time, and while market watchers said the bank's statement did not shut down the possibility of more rate hikes in the near term, market pricing was stiffly in favor of no change in rates.
According to a Reuters calculation on yields on overnight index swaps, the markets saw about an 82 percent probability of the bank leaving rates unchanged at its next policy announcement date in October. BOCWATCH
That is in line with a recent Reuters poll of global strategists and Canada's 12 primary dealers that showed most saw the bank leaving interest rates steady for the rest of the year. [CA/POLL]
"As it stands right now, our official call was for the bank to remain on hold for the next few meetings, but that's obviously something we have to review in light of the statement and as economic figures roll in in the weeks ahead, but that's our official call for now," said Doug Porter, deputy chief economist at BMO Capital Markets.
Investors were also eyeing the U.S. Federal Reserve's release of its Beige Book, due later in the day. This economic evidence gathered from the central bank's 12 regional banks will provide insight into the state of the U.S. economy, as well as U.S. retail sales data. (Additional reporting by Claire Sibonney, Jennifer Kwan, and Solarina Ho; editing by Peter Galloway)