* Canadian dollar at C$1.1032 or 90.65 U.S. cents
* Bond prices lower across the maturity curve
(Adds details, quotes, updates prices)
By Leah Schnurr
TORONTO, April 1 (Reuters) - The Canadian dollar
strengthened modestly against the greenback on Tuesday, helped
by a bigger-than-expected increase in domestic producer prices.
As investors looked ahead to more economic reports later in
the week, data on Tuesday showed that Canadian producer prices
rose by a more-than-expected 1 percent in February, helped by
higher fuel prices and a weaker Canadian dollar.
"We have some signs of very early downstream inflationary
pressures, so that's kept the expectation for an interest rate
hike in Canada very slightly positive for the next 12 months,"
said Camilla Sutton, chief currency strategist at Scotiabank in
Toronto.
"That's been somewhat positive for the Canadian dollar."
The Bank of Canada's monetary policy has been a major driver
of the Canadian dollar in recent months. The central bank has
flagged concern over a weak inflation environment, and the
loonie was hit hard last month by more dovish-than-expected
comments from the bank as it left the door open to a possible
interest rate cut.
The Canadian dollar ended the North American
session at C$1.1032 to the greenback, or 90.65 U.S. cents,
firmer than Monday's close of C$1.1055, or 90.46 U.S. cents.
It was a more positive start to the second quarter for the
currency after the U.S. dollar appreciated 4.1 percent against
the loonie in the first quarter, the biggest quarterly hit the
currency has taken since the third quarter of 2011.
Data overnight showed major economies in Asia and Europe
finished the first quarter on a weaker note. The euro zone's
manufacturing PMI cooled slightly in March, while China's gauge
of factory activity fell to an eight-month low.
At home, investors will take in several key reports later in
the week, including February's trade balance on Thursday and the
March unemployment rate on Friday. Hiring is forecast to have
picked up last month after the economy shed jobs in February.
"The key piece for Canada is really domestic data on
Thursday and Friday," Sutton said. "Both those pieces will be
important for judging how the Canadian backdrop is unfolding,
particularly in light of a stronger-than-expected GDP print" on
Monday.
Since touching a 4-1/2 year low more than a week ago, the
Canadian dollar has clawed higher, but analysts expect it will
face significant resistance getting beyond the C$1.10 level.
"Overall, it's still a very tight trading range," said Tony
Valente, senior FX dealer for global treasury solutions at
AscendantFX in Toronto.
A surprise out of the European Central Bank's policy meeting
on Thursday or weak U.S. data could take the Canadian dollar
past C$1.10, said Valente. Until then, the currency is likely to
trade between C$1.10 and C$1.1080, he said.
Canadian government bond prices were lower across the
maturity curve, with the two-year off 2-1/2 Canadian
cents to yield 1.081 percent and the benchmark 10-year
down 36 Canadian cents to yield 2.500 percent.
(Editing by Peter Galloway)