CANADA FX DEBT-C$ gains as Canada current account deficit narrows

* Canadian dollar at C$1.0859 or 92.09 U.S. cents
    * 10-year bond yield around 11-month low

    By Leah Schnurr
    TORONTO, May 29 (Reuters) - The Canadian dollar strengthened
against the greenback on Thursday, helped by data that showed
the country's current account deficit narrowed in the first
quarter, suggesting the export sector is starting to recover.
    The current account report helped the loonie retain positive
momentum from the overnight session and offset data that showed
the U.S. economy contracted in the first quarter for the first
time in three years. 
    A stronger performance by exporters helped the current
account deficit narrow to C$12.39 billion ($11.37 billion). The
data beat market expectations and sent the Canadian dollar to a
session high. 
    "The take away is that going forward, this momentum needs to
be sustained," said Scott Smith, senior market analyst at
Cambridge Mercantile Group in Calgary.
    The Canadian dollar was at C$1.0859 to the
greenback, or 92.09 U.S. cents, stronger than Wednesday's close
of C$1.0875, or 91.95 U.S. cents.   
    Still, the loonie remained in the trading range it has been
in in recent weeks as the market weighs modestly improving
economic data against the Bank of Canada's neutral policy
    "After the slight selloff we saw yesterday in the loonie,
we're moving back to our comfortable range in the mid-C$1.08s
and we're really trying to find that next catalyst to shake the
market up," Smith said.
    Unless Friday's report on first-quarter economic growth in
Canada comes in significantly outside of the consensus forecast,
the market will likely have to wait for next week, when the May
employment report and the Bank of Canada's latest policy
statement are released, to see a real driver, Smith said.
    Canadian government bond yields continued to weaken, taking
their cue from U.S. Treasuries. The yield on the Canadian
benchmark 10-year bond was hovering around an
11-month low at 2.222 percent, with the price up 3 Canadian
    The two-year price was up 0.3 of a Canadian cent
to yield 1.040.

 (Editing by Peter Galloway)