CANADA FX DEBT-C$ weakens as North American factory data drags

* C$ at $0.9949 vs US$, or $1.0051
    * U.S. manufacturing data contracts unexpectedly in Nov
    * Canada PMI shows manufacturing slowed for 5th month
    * Bond prices mixed

    By Solarina Ho
    TORONTO, Dec 3 (Reuters) - The Canadian dollar softened
against the U.S. currency on Monday after U.S. data showed the
country's manufacturing sector shrank unexpectedly in November,
though signs of economic growth in China tempered losses.
    The Institute for Supply Management (ISM) said its index of
national factory activity in the United States fell to 49.5 in
November from 51.7 the month before, its lowest level in more
than three years and below expectations. 
    "Equities turned after the ISM data came out this morning,"
said David Bradley, director of foreign exchange trading at
Scotiabank, but added the moves were very limited.
    "There's just a lot of market positioning going on ahead of
some of the central bank announcements later this week, some
more data coming out this week."
    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."
    The Canadian dollar finished the session at
C$0.9949 versus the U.S. dollar, or $1.0051, compared with
Friday's North American session close of C$0.9936, or $1.0064.
    "Unfortunately, I just think we're going to be in for phases
of almost historically low volatility, especially now that we're
into December, heading into the holiday season. I don't see
anything that's going to push us out of this range," said
Bradley, adding that investors may buy the Canadian dollar as it
approaches C$0.9960.
    Canada also underperformed against most other major
currencies, although it did touch a 1-1/2 week high against the
Australian dollar 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. 
    Investors will be watching the Bank of Canada's interest
rate announcement on Tuesday for any shift in its long-held
tightening bias.
    "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.
    The central bank is expected to hold off raising interest
rates until the fourth quarter of 2013 but will continue to talk
about a hike, a Reuters poll of market forecasters found.
    "There's a bit of uncertainty over the last couple of
meetings based out of (Governor Mark) Carney being so hawkish in
the beginning of the summer ... but I think this meeting's going
to be a non-event, to be honest," Bradley 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 were mixed, with the two-year bond
 up 1 Canadian cent to yield 1.064 percent, while the
benchmark 10-year bond lost 3 Canadian cents to
yield 1.702 percent.