CANADA FX DEBT-C$ pares losses after GDP data tops forecasts

TORONTO, Aug 30 (Reuters) - The Canadian dollar pared losses against its U.S. counterpart on Friday after Canadian gross domestic product (GDP) data for the second quarter slightly exceeded forecasts.

Disappointing data in recent weeks have lowered hopes for a strong showing from the Canadian economy, which shifted into lower gear in the second quarter and contracted in June, partly affected by a Quebec construction strike and flooding in Alberta.

GDP grew by 1.7 percent, annualized, in the quarter, Statistics Canada said, but slowed from 2.2 percent growth in the first quarter.

Given that the report was no worse than economists had feared, the currency pared its early losses.

“The concern was that we could get a downward surprise on the report, so this could provide modest support for the currency,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.

The currency briefly touched a session low of C$1.0559 to the U.S. dollar, or 94.71 U.S. cents, after the release, before quickly recovering to trade around C$1.0530, or 94.97 U.S. cents, its closing level on Thursday.

The currency has also benefited from rising oil prices, which are on track for their biggest monthly gain in a year, but that boost has been offset by flight to safe-haven currencies, such as the greenback amid escalating tensions in Syria.

“My view is that when we have these very high oil prices and geopolitical uncertainty, if you are going to pick a commodity currency, the Canadian dollar still looks like a pretty good candidate,” said Stefane Marion, chief economist at National Bank Financial.

Prices for Canadian government debt were mostly lower, with the two-year bond off half a Canadian cent to yield 1.197 percent, and the benchmark 10-year bond down 12 Canadian cents to yield 2.621 percent.