CANADA FX DEBT-C$ advances as Fed keeps stimulus in place

* C$ at C$1.0272 vs US$, or 97.35 U.S. cents
    * Canada's GDP grew 0.2 pct in May
    * U.S. Q2 GDP grew 1.7 pct annualized
    * C$ hits strongest level against Aussie in more than 3

    By Solarina Ho
    TORONTO, July 31 (Reuters) - The Canadian dollar
strengthened against the U.S. dollar on Wednesday, recouping
early losses, after the U.S. Federal Reserve offered no
indication it will rein in its bond-buying stimulus program at
its September meeting.
    The U.S. central bank said after a two-day meeting that it
would keep buying $85 billion in mortgage and Treasury
securities per month in its effort to strengthen an economy that
it said was still challenged by budget-tightening. 
    "It's the right thing for them do at this stage. They're
essentially reinforcing the message that they're data dependent
and they aren't going to act in a rash, hurried fashion," said
Derek Holt, an economist at Scotiabank. 
    "That, to me, says the decision on tapering is late-year at
the earliest ... The Canadian dollar strength would keep the
Bank of Canada relatively cautious for a period as well."
     The Canadian dollar finished the North American
session at C$1.0272 versus the U.S. dollar, or 97.35 U.S. cents,
up from Tuesday's close of C$1.0302, or 97.07 U.S. cents. 
    It retreated as far as C$1.0337, or 96.74 U.S. cents, early
in the day after the GDP data was released. Canadian gross
domestic product grew by 0.2 percent in May from April, a
lower-than-forecast figure that trimmed expectations for
second-quarter GDP. 
    The median forecast in a Reuters survey was for 0.3 percent
growth, ahead of what is expected to be a poor June reading due
to floods in Alberta and a construction strike in Quebec.
    But U.S. economic growth unexpectedly accelerated during the
second quarter, expanding at a 1.7 percent annual rate and 
laying a firmer foundation for the rest of the year.
    "A pleasant surprise on the upside for U.S. growth prospects
heading into what is expected to be even stronger growth in the
second half of the year," said Craig Wright, chief economist at
Royal Bank of Canada.
     The Canadian dollar outperformed most other major
currencies and touched its strongest level against the
Australian dollar in more than three years.
    Government bond prices were mostly higher across the
maturity curve. The two-year bond rose 5.5 Canadian
cents to yield 1.155 percent, while the benchmark 10-year bond
 climbed 53 Canadian cents to yield 2.453 percent.