CANADA FX DEBT-C$ hits strongest level since July, then steadies

* Canadian dollar at C$1.2928, or 77.35 U.S. cents
    * Bond prices lower across the maturity curve

    TORONTO, Oct 15 (Reuters) - The Canadian dollar hit its
strongest level against its U.S. counterpart since late July on
Thursday, before pulling back after a rise in U.S. inflation
offset recent weak data that could delay an expected increase in
U.S. interest rates.
    The loonie, as Canada's currency is colloquially known, had
gained sharply a day earlier as investors second-guessed whether
the U.S. Federal Reserve would hike rates this year, given a
string of weak U.S. and Chinese economic data.
    Stronger-than-expected U.S. inflation data on Thursday
helped the greenback claw back some recent losses. 
    * At 8:51 a.m. ET (1251 GMT), the Canadian dollar 
was trading at C$1.2928 to the greenback, or 77.35 U.S. cents,
just weaker than the Bank of Canada's official close on
Wednesday of C$1.2922, or 77.39 U.S. cents.
    * The currency's strongest level of the session was
C$1.2874, a level last seen on July 29, while its weakest level
was C$1.2947. It had traded above C$1.30 for most of October. 
    * The Canadian economy probably rebounded from a mild
recession last quarter, helped by solid U.S. demand for its
exports, according to a Reuters poll, but the recovery was not
seen as strong enough to warrant an interest rate rise until
    * U.S. crude prices were down 1.22 percent to $46.07
a barrel, while Brent crude lost 0.53 percent to
    * The Canadian dollar, which was outperforming most of its
key currency counterparts, is expected to trade between C$1.2855
and C$1.2945 against the U.S. dollar on Thursday, according to
RBC Capital Markets.
    * Canadian government bond prices were lower across the
maturity curve, with the two-year price down 2.5
Canadian cents to yield 0.534 percent and the benchmark 10-year
 falling 25 Canadian cents to yield 1.422 percent.
    * The Canada-U.S. two-year bond spread was -5.5 basis
points, while the 10-year spread was -58.5 basis points.

 (Reporting by Alastair Sharp; Editing by Meredith Mazzilli)