CANADA FX DEBT-"Stretched" Canadian dollar eases after rally

* C$ at C$0.9742 vs US$, or $1.0265
    * Bond prices fall across the curve

    By Claire Sibonney
    TORONTO, Sept 12 (Reuters) - The Canadian dollar paused
after a four-day rally versus its U.S. counterpart on Wednesday,
with little reaction to the ruling by Germany's top court
allowing the euro zone's new bailout fund to go ahead as
attention turned to the start of the U.S. Federal Reserve's
two-day policy meeting.
    The Fed looks set to announce a third round of bond
purchases after the meeting of the Federal Open Market Committee
ends on Thursday, as it tries to drive borrowing costs lower and
breathe more life into an economy that is not growing fast
enough to reduce unemployment.
    The Canadian dollar hit a 13-month high on Tuesday on
expectations of more stimulus by the Fed, which is seen weighing
on the U.S. dollar against higher-yielding currencies such as
    "Canada is stretched a little here. We're really the only
currency trading at its 13-month highs, and so I think the
others are playing catch-up maybe, and Canada is just waiting
for the next catalyst," said Camilla Sutton, chief currency
strategist at Scotiabank. 
    "We're totally happy to ignore yesterday's absolutely
miserable trade balance data and now waiting for FOMC tomorrow,"
she added.
    Canada on Tuesday reported that its trade deficit hit a
record high in July. 
    At 8 a.m. (1200 GMT), the Canadian dollar was at
C$0.9742 versus the greenback, or $1.0265, slightly weaker than
Tuesday's finish at C$0.9732 to the U.S. dollar, or $1.0275.
    Sutton pegged the day's range for the Canadian dollar
between C$0.9702-C$0.9766.
    Elsewhere, Germany's Constitutional Court gave a green light
for the country to ratify the euro zone's new bailout fund.
Approval of the rescue package is crucial to boosting the euro
zone's crisis fighting powers and a key requirement for the
European Central Bank's new plan to buy the bonds of struggling
euro members. 
    Canadian government bond prices retreated across the curve,
with the two-year bond down 4 Canadian cents to yield
1.194 percent and the benchmark 10-year bond falling
42 Canadian cents, yielding 1.900 percent.