CANADA FX DEBT-C$ gains on GDP data, central bank rate decision in focus

(Updates with fresh comment, closing figures and additional
    * Canadian dollar at C$1.2490 or 80.06 U.S. cents
    * Bond prices mixed across the maturity curve

    By Solarina Ho
    TORONTO, March 3 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Tuesday after data
showed the economy grew at a faster pace than forecast during
the fourth quarter, reinforcing expectations that the Bank of
Canada will likely keep interest rates on hold.
    The central bank is due to announce its March rate decision
Wednesday morning and markets are pricing in about a 27 percent
chance of another 25 basis point cut.
    This is higher than the 20 percent chance markets were
expecting earlier in the session, but still a far cry from the
80 percent last week, before Governor Stephen Poloz dispelled
those expectations.
    "It was a pretty good day ... bit (the Canadian dollar)
hasn't been able to break out of the chop-fest we had in
February. The market is clearly waiting for the Bank of Canada
here," said Amo Sahota, director at Klarity FX in San Francisco.
    "I think there's a little bit more nervousness in the market
place than the price is actually showing."
    The Canadian dollar, which was outperforming most
of its major currency counterparts, finished the North American
session at C$1.2490 to the greenback, or 80.06 U.S. cents,
stronger than Monday's close at C$1.2535, or 79.78 U.S. cents.
Earlier, it touched its firmest level of the session at
C$1.2434, or 80.42 U.S. cents.
    Sahota said the Canadian dollar could potentially strengthen
past the C$1.2350 area if the Bank of Canada confirms
expectations and keeps rates steady at 0.75 percent.
    On the data front, consumer spending and a build up in
inventories offset a decline in exports, putting the annualized
rate for Canadian gross domestic product at 2.4 percent, higher
than the 2 percent economists had expected. Still, the figure
was a step down from an upwardly revised 3.2 percent in the
third quarter. 
    "The encouraging revisions and a decent hand off into Q1 I
think does keep us with a better-than-feared outcome for the
Canadian economy," said David Tulk, chief Canada macro
strategist at TD Securities.
    Canadian government bond prices were mixed across the
maturity curve. The two-year fell 1 Canadian cent to
yield 0.497 percent and the benchmark 10-year 51
Canadian cents to yield 1.424 percent.

 (Editing by Meredith Mazzilli, Andrew Hay)