CANADA FX DEBT-C$ firms near 3-1/2 month high on Fed hopes

* C$ at $0.9878 vs US$, or $1.0124
    * C$ hits C$0.9843, or $1.0160
    * Bond prices mixed
    * Bernanke's speech, GDP in focus

    By Solarina Ho
    TORONTO, Aug 28 (Reuters) - The Canadian dollar firmed
against the U.S. currency on Tuesday, returning to a 3 1/2 month
high hit last week, helped by investor hopes for a key speech by
Federal Reserve Chairman Ben Bernanke this Friday.
    Market watchers will closely watch Bernanke's speech in
Jackson Hole, Wyoming for any hints on when the Fed may
introduce more monetary easing. The Fed's next policy meeting is
set for Sept. 12-13. 
    Recent comments from Federal Reserve officials and policy
meeting minutes showed that a good portion of the Fed committee
is ready to move forward with a third round of quantitative
easing -- producing new money to buy financial
    "Traders are managing sentiment that almost what's good for
the U.S. is even better for Canada from an economic standpoint.
The fact that there's some positive U.S. sentiment is definitely
bolstering the Canadian dollar as a result," said Mark Frey,
chief market strategist at Cambridge Mercantile Group.
    The United States is the largest market for Canadian
exports, so any moves to boost growth there would typically
support the Canadian dollar.
    Frey noted the market was positioning itself for positive
discussion on quantitative easing on Friday and pricing in a
much higher probability action will be taken before the U.S.
election in November.
    "I don't think we're going to see something in October,
weeks before the election. I think if we're going to see
something, it's going to have to be at the next meeting in
September," he said.
    The Canadian dollar finished the session at
C$0.9878 against the U.S. dollar, or $1.0124, firmer than
Monday's North American session close at C$0.9908, or $1.0093.
    Earlier in the session, the currency touched C$0.9843, or
$1.0160, matching the 3-1/2 month high hit last week.
    Also in focus on Friday will be Canadian gross domestic
product figures, which are expected to be soft.
    Against other currencies, the Canadian dollar hit a
2-1/2-month peak against the Australian dollar. 
    Canadian bond prices were mixed, with the two-year bond
 down 2 Canadian cents to yield 1.167 percent and the
benchmark 10-year bond up 7 Canadian cents to yield
1.799 percent.