CANADA FX DEBT-C$ hits 1-week low; caution ahead of central bank

* Canadian dollar at C$1.0897 or 91.77 U.S. cents
    * Bond prices lower across the maturity curve

    By Leah Schnurr
    TORONTO, June 2 (Reuters) - The Canadian dollar weakened to
its lowest level in over a week against the greenback on Monday,
despite encouraging economic data out of China as investors were
cautious ahead of a Bank of Canada policy decision later in the
    China's factory activity expanded at the fastest pace in
five months in May as new orders rose. The loonie is often
sensitive to developments in China, which is the world's
second-largest economy and a major consumer of natural
    But the Canadian dollar entered the day on weak footing,
extending Friday's decline that was prompted by disappointing
domestic economic growth in the first quarter. 
    Firmer yields for U.S. Treasuries following last week's rout
also gave the U.S. dollar a lift to the detriment of the loonie,
said Scott Smith, senior market analyst at Cambridge Mercantile
Group in Calgary.
    Focus was on the Bank of Canada's monetary policy statement
on Wednesday. The central bank has taken a neutral stance since
late last year and has flagged its concerns about the weak
inflation environment, but investors are watching to see if the
bank will alter its tone after the recent pick up in inflation. 
    "There won't be a huge amount of large positions being taken
heading into the Bank of Canada. That being said, I don't think
we'll see a material deviation from what we've heard previously
from Governor Poloz," said Smith.
    "I think that he'll try to stay away from any language that
materially strengthens the Canadian dollar because he knows how
important a weak Canadian dollar is to the export sector and the
economy, and hence the overall recovery in Canada."
    The Canadian dollar was at C$1.0897 to the
greenback, or 91.77 U.S. cents, not far from its session low of
C$1.0905. The currency was weaker than Friday's close of
C$1.0842, or 92.23 U.S. cents.
    Canadian government bond prices were lower across the
maturity curve, with the two-year down 1-1/2 Canadian
cents to yield 1.061 percent and the benchmark 10-year
 was down 31 Canadian cents to yield 2.283 percent.

 (Editing by Nick Zieminski)