CANADA FX DEBT-C$ stronger after initial weakness following Liberal victory

* Canadian dollar at C$1.2981, or 77.04 U.S. cents
    * Bond prices lower across the maturity curve

    By Alastair Sharp
    TORONTO, Oct 20 (Reuters) - The Canadian dollar strengthened
on Tuesday after voters elected a majority Liberal government
that pledged to spend money to stimulate growth, which could
limit the need for the Bank of Canada to cut interest rates.
    Liberal leader Justin Trudeau rode a late campaign surge to
a stunning election victory on Monday, toppling the incumbent
Conservatives with a far more resounding victory than polls had
    During the campaign, Trudeau pledged to run a C$10 billion
annual budget deficit for three years to invest in
infrastructure and help stimulate Canada's anemic economic
    "The fiscal-monetary mix is going to be potentially slightly
different than has been the case and would have been the case
under another Harper administration," said Jeremy Stretch, head
of foreign exchange strategy at CIBC World Markets in London.
    At 9:23 a.m. ET (1323 GMT), the Canadian dollar was
trading at C$1.2981 to the greenback, or 77.04 U.S. cents,
stronger than Monday's close of C$1.3019, or 76.81 U.S. cents.
    It also gained against most of its other key peers.
    The prospect of a new government had weighed on the Canadian
dollar immediately following the election results, with currency
weakening to as low as C$1.3048, or 76.64 U.S. cents.
     While some analysts said the uncertainty of a new
government weighed on the currency, they also noted things were
more certain than if it had been a minority government, and that
energy and commodity prices were a major influence.
    "We'll continue to trade Canada as a commodities currency
more than any other factor," said Bart Wakabayashi, head of
foreign exchange for State Street Global Markets in Tokyo.
    "That link is very hard to shake off and will continue to
dominate dollar/CAD direction."
    Stretch said the currency would likely weaken through the
remainder of the year, perhaps as high as C$1.36 to the
greenback, given the U.S. economy appears to be growing faster
than Canada's and its central bank is closing to raising rates.
    "There is still a risk that we see another squeeze higher in
terms of dollar/Canada over the next three months, but that's
more a function of the U.S. side of the equation," he said.
    RBC Capital Markets analysts said the response to the
election results was muted and the likely looser fiscal stance
would not have a long-term impact on the currency.
    They saw the currency trading between C$1.2960 and C$1.3040
during the session.
    Canadian government bond prices were lower, with the
two-year down 4.5 Canadian cents to yield 0.548
percent and the benchmark 10-year fell 59 Canadian
cents to yield 1.520 percent.
    Spreads to U.S. Treasuries were little changed even with the
new government's plan to run deficits.  

 (With additional reporting by Lisa Twaronite in Tokyo; Editing
by Nick Zieminski)