CANADA FX DEBT-C$ rallies as markets await Fed decision

* Canadian dollar at C$1.0970 or 91.16 U.S. cents
    * Bond prices mixed across the maturity curve

 (Adds details, quotes, updates prices)
    By Leah Schnurr
    TORONTO, Sept 16 (Reuters) - The Canadian dollar rallied
against the greenback on Tuesday, pulling further away from a
more than five-month low hit earlier in the week as investors
yet again reassessed how close the United States is to raising
interest rates.
    The currency market also took in comments on monetary policy
at home, but the speech from Bank of Canada Governor Stephen
Poloz did not elicit much reaction. Poloz said the central bank
is not trying to manipulate the value of the currency, which
gives it freedom not to match a possible rise in U.S. rates.
    Investors' main focus was on the Federal Reserve's two-day
meeting, which will end with the release of a policy statement
on Wednesday. 
    Traders have been betting that the tone of the statement
could turn more hawkish and signal a rate increase sooner rather
than later. That took the loonie sharply lower last week as it
broke through some key resistance levels.
    However, investors did an about-face on Tuesday after a
report said the Fed was unlikely to change its dovish stance.
    "I think there is a fair bit of nervousness around the Fed,"
said Ken Wills, currency strategist and broker at CanadianForex
in Toronto. "This has been built up over the last few weeks as
it could be a real turning point."
    The Canadian dollar ended the North American
session at C$1.0970 to the greenback, or 91.16 U.S. cents,
stronger than Monday's close of C$1.1050, or 90.50 U.S. cents.
    The Canadian dollar started the day strong, even before the
shifting Fed speculation, helped by data that showed factory
sales jumped 2.5 percent in July, a much faster pace than
    The loonie has seen some large swings in recent days, with a
drop of nearly 2 percent last week. The currency fell all the
way to C$1.11, but it was unable to push through that resistance
barrier and has rallied since.
    That gives the Canadian dollar a wide range of C$1.0950 to 
C$1.11 depending on what the Fed does, said Wills.
    Canadian government bond prices were mixed across the
maturity curve, with the two-year up half a Canadian
cent to yield 1.000 percent and the benchmark 10-year
 down 5 Canadian cents to yield 2.243 percent.

 (Editing by Andre Grenon)