* C$ holds ground at C$1.0251 vs US$, or 97.55 U.S. cents * Bond prices drift higher amid Europe worries By Claire Sibonney TORONTO, May 24 (Reuters) - The Canadian dollar steadied on Thursday after touching its weakest level in more than four months in the previous session, though investors continued to worry about a worsening debt crisis in Europe. The euro hit a 22-month low and safe-haven German bonds achieved record low yields, after data showed Europe's economic outlook deteriorating as business confidence is undercut by talk of a Greek exit and slow progress in tackling the debt crisis. "Unfortunately the trend is still (unchanged). I think risk aversion is still the go-to trade at the moment," said Dean Popplewell, chief currency strategist at OANDA. "There's very good demand for U.S. dollars on any Canadian rally at the moment." The dollar index climbed to a 20-month high on Thursday. "I think Canada has certainly overextended itself...what tends to happen in this Canadian trading environment is that it does take a breather, more so than other currencies, specifically because of its economic ties to the U.S.," added Popplewell. At 8:03 a.m. (1203 GMT), the Canadian dollar, the currency stood at C$1.0251 versus the U.S. dollar, or 97.55 U.S. cents, off slightly from Wednesday's close at C$1.0242 versus the U.S. currency, or 97.64 U.S. cents. Data that showed private-sector factory activity in China also faltered in May as demand for exports fell also hit investor sentiment, in a sign the impact of the euro zone crisis could be undermining global economic recovery as Europe is China's largest export market. Traders will look to U.S. jobless claims and durable goods data at 8:30 a.m. for further direction. Popplewell said that beyond the Canadian dollar's Wednesday low near C$1.03, the currency still stands to lose another cent to cent and half in the near term. Canadian bond prices ticked up, tracking U.S. Treasuries higher on concerns over the health of the euro zone economy. Canada's two-year bond was up 1 Canadian cent to yield 1.146 percent, while the benchmark 10-year bond rose 12 Canadian cents to yield 1.864 percent.