CANADA FX DEBT-C$ weaker after Canada GDP shrinks

* Canadian dollar at C$1.2519, or 79.88 U.S. cents

* Bond prices higher across the maturity curve

TORONTO, May 29 (Reuters) - The Canadian dollar weakened on Friday after data showed the country’s economy contracted in the first quarter as business investment and exports fell.

With the data likely to bolster the view that Canada’s central bank will hold rates steady until well after its U.S. counterpart has begun a raising cycle, momentum is not on the side of the loonie, as Canada’s currency is colloquially known.

“It’s much more likely to weaken from here than strengthen,” said CIBC World Markets Chief Economist Avery Shenfeld. “The (U.S. Federal Reserve) is still talking about a rate hike this year, and that’s nowhere in sight for the Bank of Canada.

Canada’s first-quarter performance was the nation’s worst since the second quarter of 2009, while the U.S. economy also contracted.

* At 9:16 a.m. ET (1316 GMT), the Canadian dollar was trading at C$1.2519 to the greenback, or 79.88 U.S. cents, its weakest level of the session and much weaker than Thursday’s close of C$1.2435, or 80.42 U.S. cents.

* The currency’s strongest level of the session was C$1.2411.

* U.S. crude prices were up 0.49 percent at $57.96, while Brent crude added 0.54 percent to $62.92.

* Canadian government bond prices were higher across the maturity curve, with the two-year up 7.5 Canadian cents to yield 0.582 percent and the benchmark 10-year rising 47 Canadian cents to yield 1.624 percent.

* The Canada-U.S. two-year bond spread was -3.3 basis points, while the 10-year spread was -48.7 basis points. (Reporting by Alastair Sharp; Editing by Lisa Von Ahn)