CANADA FX DEBT-C$ falls on weak GDP, stimulus hopes fade

* C$ ends at C$1.0029 vs US$, or 99.71
    * Earlier, C$ hit 11-wk high of C$1.0003, or 99.97 U.S.
    * Economy grows at slower-than-expected pace in May
    * Bond prices climb across the curve

    By Jennifer Kwan
    TORONTO, July 31 (Reuters) - Canada's dollar slipped against
its U.S. counterpart on Tuesday, pulling back from an 11-week
high that was within striking distance of parity on
disappointing domestic growth data and worries central banks may
not deliver enough stimulus to alleviate concerns about a global
    Economic growth in Canada shifted into low gear in May on
unexpected weakness in the manufacturing sector, casting doubt
on the country's ability to distance itself from the
disappointing performance plaguing the United States.
    The data helped solidify many analysts' view that the Bank
of Canada will likely remain on the sidelines on raising
interest rates until at least 2013 because growth does not
appear fast enough to stoke inflationary pressures.
    A Reuters poll earlier this month showed most Canadian
primary dealers expect the central bank to hold interest rates
steady until mid-2013 or later. 
    "Remember they were already calling for a fairly mediocre
second quarter in their downgraded outlook," said Avery
Shenfeld, chief economist for CIBC World Markets, referring to
the Bank of Canada.
    "If anything they may be slightly on the high side of what
looks reasonable. This won't be far off their projection. It's
simply too slow to be thinking of raising interest rates any
time soon."
    The Canadian dollar ended at C$1.0029 against the
greenback, or 99.71 U.S. cents, slightly softer than Monday's
North American session close at C$1.0018 against the greenback,
or 99.82 U.S. cents.
    Earlier on Tuesday, the Canadian currency touched C$1.0003,
or 99.97 U.S. cents, its firmest level since mid-May.
    The currency also softened as investors feared a recent
rally built on market hopes of new stimulus from central banks
in the United States and Europe had been overdone.
    Riskier assets have been boosted by mounting expectation
that the European Central Bank will revive its bond buying
program to help lower the borrowing costs of debt-stricken Spain
and Italy, while the U.S. Federal Reserve has been under renewed
pressure to support flagging growth.
    Both central banks hold policy meetings this week. 
    "People are just ... waiting to see what happens tomorrow
with the Fed and Thursday with the ECB ... and that's why the
range is just as tight as it is -- pretty much every currency is
pretty tight today," said Benjamin Reitzes, senior economist and
foreign exchange strategist at BMO Capital Markets.
    Last week, ECB President Mario Draghi said the ECB was ready
to do whatever it takes to preserve the euro. 
    "I think that people are reluctant to really take on any big
positions either way because if the ECB does really act in a
bold manner, you could get a big risk-on rally, and if they
disappoint, well, look out," Reitzes added.
    Charles St-Arnaud, economist and currency strategist at
Nomura Securities in New York, said the Canadian dollar could
easily revisit parity on positive headlines from either the Fed
or the ECB.
    He noted, however, that any negative comments could take the
currency back to C$1.0080 in the near term.
    Most market observers also said volumes were thin ahead of
the headlines from the central bankers.
    "Really we're just marking time ahead of the Fed and the
ECB," said David Tulk, chief Canada macro strategist at TD
    The currency largely underperformed against its major
currency peers on Tuesday, including commodity-linked cousins,
the Australian and New Zealand dollars.
    Canadian bond prices climbed across the curve with the
two-year bond up 2 Canadian cent to yield 1.080
percent, and the benchmark 10-year bond higher by 14
Canadian cents to yield 1.686 percent.