CANADA FX DEBT-C$ rises ahead of ECB cash boost

* C$ hits one-week high of C$0.9941 vs US$, or $1.0059

* Bond prices little changed across the curve

TORONTO, Feb 28 (Reuters) - The Canadian dollar hit a one-week high against its U.S. counterpart on Tuesday as riskier assets priced in an injection of cheap cash by the European Central Bank that would boost liquidity for banks and ease borrowing costs for troubled nations.

Markets expect European banks to borrow about 500 billion euros ($670 billion) of funds to be offered by the ECB at Wednesday’s long term refinancing operation (LTRO), although forecasts range from 200 billion to 750 billion euros.

Credited with lowering state borrowing costs for Italy and Spain, the initial December allotment of 489 billion euros of three-year loans also helped avert a euro zone credit crunch in January, money supply data suggested on Monday.

“It did give risk assets a pretty good boost last time just recognizing that this program was very helpful in providing liquidity and eliminating some of the immediate downside risk afflicting the euro area,” said David Tulk, chief Canada macro strategist at TD Securities.

Currency investors seemed to overlook news that Standard & Poor’s cut its ratings on Greece to “selective default” as Athens’ efforts to lighten its debt burden was largely expected to trigger the downgrade.

They also took in stride the ECB’s temporary suspension of Greek bonds as collateral for its funding operations as well as a solid Italian debt auction. [ID: nI6E7NJ01A]

At 8:11 a.m. (1311 GMT), the Canadian dollar was at C$0.9959 versus the U.S. dollar, or $1.0041, up from Monday’s North American session finish at C$0.9992 versus the U.S. dollar, or $1.0008. Earlier, the currency reached C$0.9941, or $1.0059, it’s strongest level since Feb. 21.

Tulk put near term support for the Canadian dollar around the parity level and resistance near C$0.9900.

A fall in oil prices following a recent surge also supported broader risk appetite, even for commodity-driven currencies like Canada’s, as investors fear elevated oil poses a threat to the global economy.

“Beyond a certain point higher oil prices don’t cause the Canadian dollar to appreciate to the same degree,” added Tulk.

“The fact that we’re basically topped out it seems over the last couple of sessions suggests that there’s not too much upside for the Canadian dollar in this environment.”

Canadian bond prices were little changed across the curve. The two-year bond was flat to yield 1.063 percent. The 10-year bond rose 12 Canadian cents to yield 1.992 percent.