CANADA FX DEBT-C$ strengthens after in-line Canada GDP data

* C$ ends at C$1.0271 to US$, or 97.36 U.S. cents

* Currency helped by GDP data; weak but as forecast

* C$ early hit C$1.0343, weakest since June

TORONTO, March 1 (Reuters) - The Canadian dollar strengthened on Friday, rebounding from an early decline to its lowest level since late June, after fourth-quarter domestic growth data came in as forecast.

The Canadian economy chalked up another quarter of weak growth at the end of 2012, and shrank 0.2 percent in December for its first monthly decline since February 2012.

But because economists had sharply lowered their expectations in recent weeks, the currency actually strengthened after the numbers were released.

“A lot of investors were going into the data thinking it would be even worse,” said Charles St-Arnaud, Canadian economist and currency strategist at Nomura Securities International in New York.

In the medium term, however, St-Arnaud said he expected to see more weakness in the Canadian dollar. He said one factor weighing on the currency is that Canada keeps importing oil for Eastern refineries at a higher price than it exports from Western Canada.

“Everything seems to be pointing to very weak growth in the next few quarters,” he said.

The Canadian dollar finished the North American session at C$1.0271 to the greenback, or 97.36 U.S. cents, compared with C$1.0314, or 96.96 U.S. cents, at Thursday’s North American close.

The currency dropped sharply overnight, hitting C$1.0343, its weakest level since June 28.

The loonie, as Canada’s currency is known colloquially, has weakened against the U.S. dollar since mid-February, when the pair were changing hands at equal value.

The rise of Canada’s dollar against the U.S. dollar on Friday came as the greenback strengthened versus a basket of currencies following weak euro zone and Asian economic data, which contrasted with more healthy U.S. economic gauges.

Canada also outperformed most major currencies, including sterling, against which it was trading near levels not seen since September 2011.

Traders are now looking ahead to the Bank of Canada’s next interest rate decision on Wednesday.

The central bank is seen as all but certain to hold its benchmark interest rate steady at 1 percent, so investors will focus on any changes to the language used in its policy statement.

The Bank of Canada adopted a more hawkish stance last April, warning its next rate move would be an increase. But the ongoing debt crisis in Europe, U.S. budget battles and lackluster growth at home have combined to stay its hand. In January, the bank said that withdrawal of monetary policy stimulus was “less imminent than previously anticipated”.

The recent run of poor Canadian data has fueled speculation the central bank will tone its language down even further or could even drop its tightening bias.

“If they remove the forward language that would probably be negative for the Canadian dollar,” St-Arnaud said.

Canadian government bond prices rose across the curve. The two-year bond rose 2.3 Canadian cents to yield 0.941 percent, while the benchmark 10-year bond rose 31 Canadian cents to yield 1.804 percent.