* 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 years 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.