CANADA FX DEBT-C$ pares losses as growth data hints at 3rd-qtr turnaround
* Canadian dollar at C$1.3146, or 76.07 U.S. cents * Bond prices higher across the maturity curve By Solarina Ho TORONTO, Sept 1 (Reuters) - The Canadian dollar was steady against its U.S. counterpart on Tuesday, sharply paring earlier losses after second-quarter domestic growth data indicated the economy was finally turning around heading into the third quarter. Hit by a plunge in crude prices over the past year, Canada's economy contracted by an annualized 0.5 percent in the second quarter, indicating a recession in the first half of the year. The downturn prompted the Bank of Canada to cut interest rates by 25 basis points twice this year. Economic activity in June grew by a better-than-expected 0.5 percent, however, the first monthly increase in six months. Economists polled by Reuters forecast 0.2 percent growth. The loonie rallied to a session high shortly after the figures were released before scaling back. "(The increase) was probably more of a reflection of the June numbers. It does suggest the economy started the third quarter with a bit of oomph," said Derek Burleton, deputy chief economist at Toronto-Dominion Bank. "That does suggest at the margin that some of the expectations of a rate cut are being reversed." At 9:15 a.m. EDT (1315 GMT), the Canadian dollar traded at C$1.3146 to the greenback, or 76.07 U.S. cents, not far from the Bank of Canada's official close of C$1.3157, or 76.01 U.S. cents on Monday. The currency traded between C$1.3116 and C$1.3233 so far in the session. Earlier weakness in the currency stemmed from the latest economic numbers out of China, which showed its manufacturing sector was shrinking at the fastest pace in three years and its services sector was also cooling. The latest round of disappointing numbers from China sowed renewed fears over how the global economy will be affected by a slowdown by one of the world's largest economies and commodities consumers. The report pushed the price of oil, a key Canadian export, sharply lower. Prior to Tuesday, prices had rallied some 25 percent over three sessions. U.S. crude prices were down 4 percent to $47.22, while Brent crude lost 4.2 percent to $51.90. Canadian government bond prices were higher across the maturity curve, with the two-year price up 1 Canadian cent to yield 0.434 percent and the benchmark 10-year rising 41 Canadian cents to yield 1.448 percent. The Canada-U.S. two-year bond spread was -29.0 basis points, while the 10-year spread was -72.6 basis points. (Editing by Jeffrey Benkoe)
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