CANADA FX DEBT-C$ sags as euro zone optimism fades

* C$ stumbles at C$1.0225 vs US$, or 97.80 U.S. cents
    * Global stocks fall on Germany uncertainty, oil falls
    * Bond prices mixed across the curve

    By Jennifer Kwan
    TORONTO, July 10 (Reuters) - Canada's dollar slumped against
its U.S. counterpart on Tuesday as investor optimism about the
euro zone faded and investors focused on signs of a sharp
economic slowdown in China and its potential impact on the
global economy.
    China, the world's second-largest economy, curtailed imports
in June in further evidence that Europe's three-year-long debt
crisis is dragging down economic activity around the world. For
June, China's crude oil imports plunged to their lowest levels
of the year from a record high in May. The data helped to push
oil prices sharply lower. 
    "Today just seems like everything is sort of a downer day.
We've got oil off now two bucks, equities all down across the
board," said Don Mikolich, an executive director of foreign
exchange sales at CIBC World Markets.
    The euro slumped to a new two-year trough against the dollar
after a meeting of euro zone finance ministers failed to ease
concerns about the region's crisis.
    Euro zone ministers struggled to reassure financial markets
that an aid package for Spain they outlined overnight will help
stabilise the currency bloc - a task made all the harder by a
German legal challenge to its crisis-fighting tools. 
    Market sentiment was soured by the German Constitutional
Court, which began a hearing into whether the euro zone's fund,
known as the European Stability Mechanism, and planned changes
to the region's budget rules are compatible with German law.
Approval would pave the way for funds to be used more flexibly
to ease the European debt crisis. 
    At around 2:45 p.m. (1645 GMT), the Canadian currency
 was at C$1.0225 against the greenback, or 97.80 U.S.
cents, slightly softer than Monday's North American session
close at C$1.0193 to the U.S. dollar, or 98.11 U.S. cents.
    Mikolich said he saw the currency trading in a range of
C$1.0150 to C$1.0250 against the greenback.
    "I think we'd have to have a break above the C$1.0250 to
change the mindset back to a weaker Canadian dollar whereas
where we sit here now people still think Canada's got some room
to gain."
    One bright spot was domestic housing data. Canadian housing
starts climbed unexpectedly in June as multiple urban starts in
Quebec and British Columbia bounced higher, but homebuilding is
still expected to slow as the year progresses, Canada Mortgage
and Housing Corp said on Tuesday. 
    Canadian bond prices were mixed across the curve. The
two-year government bond was lower by 2 Canadian
cents to yield 0.968 percent, while the benchmark 10-year bond
 added 7 Canadian cents to yield 1.655 percent.