CANADA FX DEBT-C$ gains even as greenback rises, rate hike seen sooner

* C$ at C$1.0169 to US$, or 98.34 U.S. cents
    * Bets being placed on earlier Bank of Canada rate hike
    * Investors wary over central banks' withdrawal of stimulus

    By Alastair Sharp
    TORONTO, June 12 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart in early trade on
Wednesday, even as the greenback clawed back steep losses from
the previous day, as traders eyed a shorter time frame before a
Bank of Canada interest rate hike. 
    Globally, investors are still jittery over signals from
central banks, in particular the U.S. Federal Reserve and the
Bank of Japan, that monetary stimulus programs may be scaled
    But while those fears pressure stocks, bonds and currencies,
the underlying economic recovery in the United States, that will
allow such a slowing of stimulus, is broadly positive for the
Canadian dollar.
    "There is a positive implication from the U.S. recovery
getting a bit more traction, but I think the proof will have to
be in the pudding for Canadian data," said Greg Moore, a
currency strategist at TD Securities.
    Canada produced a blockbuster jobs report last Friday which
also supported ideas that the Bank of Canada may move more
quickly than expected to hike its benchmark rate, in turn
helping the Canadian currency. 
    Overnight index swaps, which trade based on expectations for
the central bank's key policy rate, have risen recently as
decent data led some investors to bet on a rate hike sooner than
previously expected. 
    A Reuters poll on May 23 showed most economists don't expect
the Bank of Canada to hike rates until the fourth quarter of
2014 due to tepid economic growth and low inflation. 
    TD's Moore warned against reading too much into the strong
showing from Friday's jobs report, which has historically swung
erratically and has a wide margin of error. 
    "It is risky to put so much weight in such a volatile data
series," he said.
    At 9:39 a.m. EDT (1339 GMT) the Canadian dollar was
trading at C$1.0169 to the greenback, or 98.34 U.S. cents,
compared with C$1.0189, or 98.15 U.S. cents, at Tuesday's North
American close.
    Moore said the loonie, as Canada's currency is colloquially
known, had broken a key level in the upper C$1.01 region and
would now be looking to test a retracement at C$1.0080.
    But he warned the currency could also pop back up to C$1.03
in a matter of days if the U.S. Fed signals that the stimulus
spigot will be tightened sooner. 
    Prices for Canadian government debt fell across the curve.
The two-year bond was off 2 Canadian cents to yield
1.161 percent, while the benchmark 10-year bond fell
24 Canadian cents to yield 2.205 percent.