CANADA FX DEBT-C$ weaker after further BoC warnings on strength
* Ends at C$1.0478 to US$, or 95.44 U.S. cents
* Rebounds from low of C$1.0545 to the U.S. dollar
* Bank of Canada sounds further warning on risk to growth
* Bond prices mixed, mirror U.S. Treasury market
By Cameron French
TORONTO, Oct 22 (Reuters) - The Canadian dollar ended slightly weaker on Thursday after the Bank of Canada once again warned the currency's rally is a risk to growth and discussed the possibility of intervention.
But the currency also pared earlier steep losses, as comments from Governor Mark Carney eased concerns that the bank might take an even harder line on the currency's appreciation.
The central bank said earlier this week that the surging currency was undermining Canada's economic recovery. That killed thoughts of an early interest rate hike and raised some concerns the bank might signal it would intervene in foreign exchange markets.
Carney told a news conference following the report's release that intervention in currency market was an option, but also stressed the bank's main concern was controlling inflation. [ID:nN22502163]
The currency briefly spiked lower to C$1.0535, or 94.92 U.S. cents, after the mention of intervention, but almost immediately pared those losses.
"The risk leading into the (report) was that Carney would say something particularly strong about the Canadian dollar, so I think that markets were concerned with that," said Camilla Sutton, senior currency strategist at Scotia Capital in Toronto.
"I don't think that he hinted that they're anticipating having to intervene," she added.
The currency finished at C$1.0478 to the U.S. dollar, or 95.44 U.S. cents, down slightly from C$1.0460 to the U.S. dollar, or 95.60 U.S. cents, at Wednesday's close.
The Canadian dollar had hit a session low of C$1.0545 to the greenback, or 94.83 U.S. cents, before the release of the report.
Also weighing on the Canadian dollar were some disappointing corporate earnings and Chinese data that showed the economy there rose a weaker-than-expected 8.9 percent in the third quarter [ID:nSP452724], which reduced investors' tolerance for risk.
The Canadian dollar has risen nearly 25 percent since mid-March, helped by rebounding commodity prices, and by a steadily retreating U.S. dollar.
A stronger Canadian currency makes exports more expensive to foreign buyers, but also makes purchases from foreign buyers cheaper, which stifles inflation.
Sutton said she expects the currency's rise to continue, noting that the past rise had a relatively muted impact on inflation expectations, meaning the bank may not be too concerned with further currency gains.
Canadian bond prices ended mixed, largely following the lead of the U.S. Treasury market as the Bank of Canada's MPR had little impact on expectations that interest rates will stay flat well into next year. Yields fell sharply after the Bank of Canada rate decision on Tuesday.
"When everything was said and done, their inflation and growth numbers really didn't change much at all," said Mark Chandler, fixed income strategist at RBC Capital Markets.
The two-year bond CA2YT=RR rose 3 Canadian cents to C$99.50 to yield 1.495 percent, while the 10-year bond CA10YT=RR fell 13 Canadian cents to C$102.32 to yield 3.463 percent.
Longer-term Canadian bonds outperformed comparable U.S. issues. The Canadian 10-year yield was about 3.5 basis points above its U.S. counterpart, down from 5 basis points on Wednesday. (Reporting by Cameron French; editing by Peter Galloway and Jeffrey Hodgson)
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