CANADA FX DEBT-C$ weakens as U.S. bond yields rise

* C$ at C$1.0498 vs US$, or 95.26 U.S. cents
    * U.S. Treasury prices slide on Fed-induced selloff
    * End of month adds to volatility

    By Andrea Hopkins
    TORONTO, June 28 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Friday as prices for U.S.
Treasuries slid in volatile trade and yields shot to a near
two-year high on a recent Fed-induced selloff.
    The U.S. dollar fell against the euro but rose against the
yen and commodity-linked currencies including the Canadian and
Australian dollars, as investors increasingly priced in the
chance that the U.S. Federal Reserve will begin to downsize its
asset purchase program, perhaps as early as September. 
    The U.S. dollar had risen forcefully since last week, when
Fed chief Ben Bernanke discussed a potential slowing of the pace
of its stimulative asset purchases as the economy improves.
    "We're seeing the U.S. yield curve and the U.S. 10-year
moving back up fairly steeply," said Jeremy Stretch, head of
foreign exchange strategy at CIBC World Markets in London.
    "It's providing a backstop for the U.S., where there might
be some cautious U.S. dollar buying into month-end as well. The
combination of those two factors is keeping the Canadian dollar
a little bit on the defensive and perhaps could see us on the
way to C$1.055 if not today then certainly into next week."
    At 9:40 a.m. (1340 GMT), the Canadian dollar was
trading at C$1.0498 to the U.S. dollar, or 95.26 U.S. cents,
down from Thursday's North American session close at C$1.0475
versus the U.S. dollar, or 95.47 U.S. cents.
    The Canadian currency had briefly pared losses against its
U.S. counterpart in early trade after Canadian data showed the
economy grew in April, strengthening to C$1.0476 to the U.S.
dollar, or 95.46 U.S. cents, before falling back.
    Canada's economy grew by 0.1 percent in April from March -
the fourth consecutive month-on-month advance - on gains by
service industries, Statistics Canada said on Friday. The modest
increase matched analysts' expectations. 
    The Bank of Canada forecasts that second-quarter growth on
an annualized basis will be 1.8 percent, down from the 2.5
percent in the first quarter. 
    Canadian government debt prices were mostly weaker. The
two-year bond was down 5.5 Canadian cents to yield
1.226 percent, while the benchmark 10-year bond fell
50 Canadian cents to yield 2.472 percent.