CANADA FX DEBT-C$ retreats on weak North American factory data

* C$ at $0.9940 vs US$, or $1.0060
    * U.S. manufacturing data contracts unexpectedly in Nov
    * Canada PMI shows manufacturing slowed for 5th month
    * Bond prices ease

    By Solarina Ho
    TORONTO, Dec 3 (Reuters) - The Canadian dollar weakened
moderately against the U.S. currency on Monday after U.S. data
showed the country's manufacturing sector shrank unexpectedly in
November, but signs of economic growth in China tempered losses.
    The Institute for Supply Management (ISM) said its index of
national factory activity fell to 49.5 in November from 51.7 the
month before, its lowest level in more than three years and
below expectations. 
    Meanwhile, Canadian manufacturing growth slowed for a fifth
straight month in November and hit a more than two-year low,
according to the RBC Canadian Manufacturing Purchasing Managers
Index. This signaled the third-quarter's disappointing economic
performance may persist for the rest of the year.
    "The data's been softer for Canada and softer for the U.S.
as well. The general risk-on tone that we started the day with
has been eaten away at a little," said Mark Chandler, head of
Canadian fixed income and currency strategy at Royal Bank of
    "Most of the indicators that we've seen coming out for
Canada have been soft, and I think that's putting the Canadian
dollar a little bit on a back foot - meaning there's a chance of
it getting weaker."
    At 11:14 a.m. (1614 GMT), the Canadian currency 
stood at C$0.9940 versus the U.S. dollar, or $1.0060, compared
with Friday's North American session close of C$0.9936, or
$1.0064. It touched a low of C$0.9946, or $1.0054, after the
U.S. data.
    Adam Cole, global head of FX strategy at RBC Capital Markets
in London, said he expected the currency to trade between
C$0.9900 and C$0.9960 during the session.
    The Canadian dollar began paring overnight gains even before
the U.S. data was released, but it got a brief boost from
Chinese manufacturing figures early in the day. Official and
private sector surveys showed activity picked up in the
country's vast manufacturing sector in November, adding to
evidence that China's economy is reviving after seven quarters
of slowing growth. 
    Meanwhile, final readings of the euro zone's Manufacturing
Purchasing Managers Index for November showed factory activity
declining at a slower rate than it has recently, though it still
left the region on course for its worst quarter since early
    Investors will be watching the Bank of Canada's interest
rate announcement on Tuesday for any shift in its long-held
tightening bias. The central bank is expected to hold off
raising interest rates until the fourth quarter of 2013 but will
continue to talk about a future hike when it sets policy, a
Reuters poll of market forecasters found. 
    "We still think the tightening bias will be left in place
tomorrow, but we also expect a slightly more dovish language,
including an admission maybe that growth is modestly weaker than
what the bank was looking for," Chandler said.
    Markets were still cautious about the budget impasse in
Washington. U.S. Treasury Secretary Timothy Geithner pushed
Republicans on Sunday to offer specific ideas to cut the
deficit, and predicted that they would agree to raise tax rates
on the rich to obtain a year-end budget deal to try to avoid the
possibility of a recession. 
   Canadian bond prices eased across the curve. The two-year
bond was off 2 Canadian cents to yield 1.080 percent,
while the benchmark 10-year bond lost 17 Canadian
cents to yield 1.718 percent.