* C$ at C$1.0314 vs US$, or 96.96 U.S. cents * U.S. GDP data shows growth slowest since Q1 2011 * Canada's current account deficit narrows to C$17.3 bln * Bond prices rise across the curve By Solarina Ho TORONTO, Feb 28 (Reuters) - The Canadian dollar touched an eight-month low against the U.S. dollar on Thursday as bearish sentiment about the outlook for the Canadian economy kept the currency under pressure. Canada will release fourth-quarter gross domestic product figures early on Friday, with many investors fearing further weakness after a string of poor data. "The Canadian numbers have generally been disappointing more frequently and more aggressively than other data points among Canada's G7 peers," said Shaun Osborne, chief currency strategist at TD Securities. The GDP data is expected to show the economy contracted in December and grew at an annualized pace of just 0.6 percent in the fourth quarter, below the central bank's already reduced forecast of 1 percent. Osborne noted that the yield premium offered by shorter-term Canadian bonds over Treasuries has also narrowed. The spread between the Canadian and U.S. 2-year bond yields narrowed to just 72 basis points on Thursday from about 95 basis points at one point in January. "That's quite a big shift in a market that tends not to move that much. Spreads are compressing, yields are eroding against the Canadian dollar," said Osborne. Canadian government bond prices were higher across the curve, with the yield on the 2-year bond falling to 0.95 percent, near a seven-month low. The 10-year bond climbed 18 Canadian cents to yield 1.845 percent. The Canadian dollar finished the North American session at C$1.0314 versus the U.S. dollar, or 96.96 U.S. cents, more than three-quarters of a cent weaker than Wednesday's North American close at C$1.0230, or 97.75 U.S. cents. This was also its weakest level since June 29, 2012. The currency began weakening earlier in the session after data showed the U.S. economy, the biggest single destination for Canadian exports, barely grew during the fourth quarter. U.S. growth came in below what economists had expected and slipped to the slowest rate since the first quarter of 2011. As the day progressed, the U.S. dollar also rose as investors embraced safety against the backdrop of a political stalemate in Italy and with the United States only hours away from sweeping, automatic spending cuts that are expected to take a toll on the global economy. These factors overshadowed news that Canada's current account deficit narrowed in the fourth quarter of 2012 on stronger exports of energy and food products. The C$17.3 billion deficit was still slightly wider than the C$17 billion forecast. "We saw a little bit of a relief rally yesterday, but it's been quickly snuffed out. American GDP data, it's softer than expected, and that calls into question the North American recovery," said Adam Button, currency analyst at ForexLive in Montreal.