CANADA FX DEBT-Canadian dollar weakens as relief rally fades

* C$ softens to C$1.0297 vs U.S., or 97.12 U.S. cents
    * Boost from Spanish bank deal proves short-lived
    * Bond prices mostly higher

    By Allison Martell	
    TORONTO, June 11 (Reuters) - Canada's dollar erased early
gains and weakened against its U.S. counterpart on Monday, as a
relief rally that followed the approval of a rescue package for
Spanish banks fizzled, with investors still worried about euro
zone's debt problems.	
    Concerns about how the Spanish bailout would be financed
weighed on sentiment, along with the fear Greek elections on
Sunday could put Athens on a path to leaving the currency bloc.
    "The risk bounce on the Spanish bank bailout has proved to
be very temporary," said Jeremy Stretch, head of foreign
exchange strategy at CIBC World Markets in London.	
    The weekend deal by the 17-nation currency area to lend
Madrid up to 100 billion euros ($125 billion) for its bank
rescue fund, more than an initial audit suggests it is likely to
need, is an attempt to reassure investors and erect a new
firewall in the crisis.	
    "The fact that the authorities have actually got together
and done something was seen as a positive," said Stretch. "But
when you sit down in the cold light of day ... the bank bailout
does nothing to deal with the paucity of growth in Spain."	
    Stretch said the banks' underlying solvency problems cannot
be fixed with additional capital as long as sluggish growth
continues to lower the value of their collateral. He noted there
are also questions about where the money will come from.	
    "Tremendous uncertainty for Europe remains," said Camilla
Sutton, chief currency strategist at Scotiabank.	
    The Canadian dollar initially rose to C$1.0202
against the U.S. dollar, its strongest since May 22, following
news of the rescue plan.	
    But it later weakened to a session low of C$1.0297 versus
the greenback, or 97.12 U.S. cents., compared with Friday's
close at C$1.0270, or 97.37 U.S. cents.	
    The euro also surrendered all of its earlier gains
against the U.S. dollar and Japanese yen. 	
    Stretch said the Canadian dollar could weaken to C$1.0345 on
Monday, but was unlikely to soften much further.	
    With no major Canadian data set for release on Monday,
investors were expected to look to Europe developments and a
string of talks by North American central bankers for market
    Canadian bond prices rose, with the two-year bond 
up 30 Canadian cents to yield 1.026 percent, while the benchmark
10-year bond was up 27 Canadian cents at 1.0782