CANADA FX DEBT-C$ pulls back from 2-1/2-month low
* Canadian dollar at C$1.2545 or 79.71 U.S. cents * Bond prices mostly lower across the maturity curve (Adds quote, byline; updates to close) By Leah Schnurr OTTAWA, July 2 (Reuters) - The Canadian dollar touched a 2-1/2-month low against the greenback on Thursday before clawing back some gains as the currency continued to be dogged by uncertainty over the Greek crisis and reduced expectations for the Canadian economy. Investors remained on watch about Greece's fate a day after the country's prime minister urged Greeks to reject an international bailout deal in a referendum this weekend. Greece defaulted on its debt to the International Monetary Fund earlier this week. The loonie has shed nearly 2 percent since last Friday, initially weighed down by concerns over Greece, with the drop then exacerbated by disappointing Canadian economic data and by a decline in oil prices. Economists say figures that showed a decline in Canadian economic growth at the start of the second quarter increase the odds that the Bank of Canada will cut interest rates again by year-end after opting for a quarter-point cut in January. "It definitely does put another rate hike in play but it doesn't necessarily mean that is going to happen, I think there's just some speculation that it could be a possibility," said Lennon Sweeting, currency strategist at USForex in Toronto. Sweeting expects to see more volatility for the loonie, due to the upcoming rate decision and the uncertainty surrounding Greece. Although markets are still pricing in about a 65 percent chance that the bank will hold its benchmark rate at 0.75 percent in its next policy announcement later this month, that is down from about a 70 percent likelihood at the start of the week. The Canadian dollar ended the North American session at C$1.2545 to the greenback, or 79.71 U.S. cents, modestly stronger than the previous session's close of C$1.2589, or 79.43 U.S. cents, according to Reuters data. The loonie touched C$1.2632, its lowest since April 13. Canadian markets were closed on Wednesday for Canada Day. Thursday's level was below the Bank of Canada's official Tuesday close of C$1.2490, or 80.06 U.S. cents. Although many traders were away from their desks on Wednesday, the loonie shed 0.7 percent as the currency fell alongside the price of oil, a major Canadian export. Canadian government bond prices were mostly lower across the maturity curve, with the two-year flat to yield 0.480 percent and the benchmark 10-year down 49 Canadian cents to yield 1.739 percent. (Reporting by Leah Schnurr; Editing by Peter Galloway and Richard Chang)
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