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* Canadian dollar edges up 0.2 percent vs greenback
* Bailout plan hopes hit safe-haven bid for bonds
By John McCrank
TORONTO, Sept 25 (Reuters) - The Canadian dollar rose against a slumping U.S. dollar on Thursday as U.S. data missed expectations, compounding concerns about the economy as U.S. lawmakers tried to reach an agreement on a proposed bailout package for the battered financial sector.
Bond prices followed the larger U.S. market lower as stocks rallied on hopes that the $700 billion U.S. rescue plan would soon be passed by Congress, cutting into the recent safe-haven bid for government debt.
The Canadian currency ended the North American session up 0.2 percent at C$1.0343, or 96.68 U.S. cents, from C$1.0367, or 96.46 U.S. cents, at Wednesday's close.
The currency rose as high as C$1.0298, or 97.11 U.S. cents early in the session.
"I think for the most part a lot of that came from this morning when we had some weaker than expected U.S. data pretty much across the board," said George Davis, chief technical strategist at RBC Capital Markets.
While fallout from the U.S. housing and financial meltdown has weakened the greenback, the Canadian dollar has managed to gain more than 4 percent in the past two weeks as the Canadian economy has been less affected by the market turmoil.
The U.S. dollar did rally late in the session on word that Congress was making progress on the proposed plan to buy up the bad debt clogging financial markets.
The Canadian dollar managed to stay in positive territory though, as the price of oil firmed, giving support to the commodity-based currency, said Davis.
Bond prices followed the larger U.S. Treasury market lower, mainly due to a rally in U.S. stocks, which took away some of the recent safe-haven bid for government debt, said Carlos Leitao, chief economist at Laurentian Bank of Canada in Montreal.
Stocks gained on hopes that the U.S. bailout plan would soon gain congressional approval, but Leitao said the rally may have been a bit premature.
"I wouldn't necessarily bring out the champagne bottles just yet. It's all grand political theater, so it's hard to put a precise timing on these things. So if we're expecting something solid and concrete by Friday ... it might take a while longer than that."
The Bank of Canada said it will pump an extra C$6 billion into markets in October to provide additional liquidity to the financial system.
The bank pledged to buy securities in the market in four additional operations and then sell them back.
The newly announced purchase and resale agreements (PRAs) come on top of two earlier announcements. They will bring to C$10 billion the total liquidity the bank will have injected into markets since the escalation of the U.S. financial crisis last week, which sent shock waves around the globe.
The two-year bond fell 8 Canadian cents to C$99.71 to yield 2.888 percent, while the 10-year bond dropped 19 Canadian cents to C$104.46 to yield 3.696 percent.
The yield spread between the two- and 10-year bond was 79.5 basis points, down from 84.1 basis points at the previous close.
The 30-year bond shed 18 Canadian cents to C$114.50 for a yield of 4.132 percent. In the United States, the 30-year treasury yielded 4.409 percent.
The three-month when-issued T-bill yielded 1.95 percent, down from 2.02 percent at the previous close. (Editing by Rob Wilson)