CANADA FX DEBT-C$ wins back minor gains as FX gyrates

* C$ at C$1.0334 vs US$, or 96.77 U.S. cents
    * Sharp swings in yen create havoc elsewhere
    * Weak China data, Bernanke's easing comments add to worry

    By Alastair Sharp
    TORONTO, May 23 (Reuters) - The Canadian dollar won back
some slight gains against its U.S. counterpart early on Thursday
after sinking to an almost 12-month low a day earlier, as
volatility reigned in currency markets.
    The Japanese yen rallied sharply against the U.S. dollar and
the euro after a shock drop in Chinese factory data hurt stock
markets, while the Canadian went along for the ride.
    "The Canadian dollar is caught in a nasty move in global
markets," said Adam Button, currency analyst at ForexLive in
    He said correlations between asset classes had broken down
and investors were struggling to guess where markets go from
    "It's walking on a razor's edge right now. It's 24 hours of
fright, after three months of exuberance," said Adam Button,
currency analyst at ForexLive in Montreal. "It could prove to be
a turning point, or a blip. At this point, I lean more towards a
turning point, and continued Canadian dollar weakness."
    The loonie, as the Canadian currency is colloquially known,
has fallen almost four cents since it neared equal value with
the greenback in early May.
    By mid-morning it was trading at C$1.0334, or 96.77 U.S.
cents, after ending Wednesday's North American session changing
hands for C$1.0372 to the greenback, or 96.41 U.S. cents.
    Prices for Canadian government debt were higher across the
curve. The two-year bond was up one and a half
Canadian cents to yield 1.025 percent, while the benchmark
10-year bond rose 25 Canadian cents to yield 1.942
    The loonie gained marginally against the Australian dollar
, another commodity currency, but one that is more
closely tied to the fortunes of China due to geographical
    A preliminary survey of manufacturing in the world's second
largest economy showed it shrunk in May for the first time in
seven months. 
    Meanwhile, comments from U.S. Federal Reserve chairman Ben
Bernanke that monetary stimulus could be scaled back also added
to investor caution worldwide.