CANADA FX DEBT-C$ holds near 7-week high ahead of ECB

* C$ session high of C$1.0120 vs US$, or 98.81 U.S. cents
    * Hits 2-yr high of C$1.2655 vs euro, or 79.02 euro cents
    * Bond prices edge higher

    By Claire Sibonney
    TORONTO, July 4 (Reuters) - The Canadian dollar hovered near
a seven-week high against the U.S. dollar and two-year peak
against the euro on Wednesday as grim economic data heightened
expectations the European Central Bank is about to cut interest
    Trading activity was subdued with U.S. markets closed for
the Independence Day holiday and investors cautious ahead of
policy decisions from the ECB and Bank of England on Thursday,
as well as North American jobs data on Friday.
    "Everyone in the world is looking for further stimulus and
that's why we're at these elevated levels," said John Curran,
senior vice president at CanadianForex, who noted that investors
will also be paying attention to a Spanish bond auction on
    Data on Wednesday showed Germany's services sector
unexpectedly stagnated in June. And while a contraction in
France's services sector eased, business expectations slumped to
their lowest in three years, underlining how bleak conditions in
Europe are.  
    The reports solidified the view that the European Central
Bank will cut interest rates to a record low on Thursday in a
move that could drive stock markets higher and further lift
commodities and commodity-linked currencies like the Canadian
    The Canadian dollar rallied to a two-year high of
C$1.2655 versus the single European currency, or 79.02 euro
cents, its strongest level since June 2010.
    Meanwhile, the BoE is seen launching a third round of
monetary stimulus on Thursday, moving to counter a recession and
the effects of a worsening debt crisis in the euro zone just two
months after calling a halt to the program. 
    At 2:31 p.m. (1831 GMT), the Canadian currency 
stood at C$1.0125 versus the greenback, or 98.77 U.S. cents,
unchanged from where it left off at Tuesday's North American
session close.
    "I think we're just seeing a bit of to-ing and fro-ing ahead
of the event risks that come up in the next couple days in thin
markets with obviously the U.S. being out," said Adam Cole,
global head of FX strategy at RBC Capital Markets in London. 
    Earlier in the session, the domestic currency hit a high of
$1.0120, or 98.81 U.S. cents, its strongest level since May 17.
    Cole expected the Canadian dollar to stick to a narrow range
between C$1.0120-C$1.0150 heading into Thursday.
    Canada's currency is seen weakening over the next six months
before firming to the one-for-one mark with the U.S. dollar, a
Reuters poll showed on Tuesday, helped by the prospect of
central bank easing abroad even as the Bank of Canada looks to
    Canadian bond prices crept up across the curve. Canada's
two-year government bond rose 2 Canadian cents to
yield 1.035 percent, while the benchmark 10-year bond
 added 24 Canadian cents to yield 1.715 percent.