CANADA FX DEBT-Loonie weakens as U.S. budget woes weigh

* C$ at C$1.0311 versus US$ or 96.98 U.S. cents
    * Worries over U.S. budget impasse keep C$ range-bound
    * Bond prices higher across the curve

    By Leah Schnurr
    TORONTO, Sept 27 (Reuters) - The Canadian dollar weakened
modestly against the greenback on Friday and was likely to trade
in a narrow range amid uncertainty over whether U.S.
congressional lawmakers would reach agreement to keep the
government running and avoid a debt default.
    U.S. House of Representatives Republicans on Thursday
refused to give in to President Barack Obama's demand for
straightforward bills to run the government beyond Sept. 30 and
to increase borrowing authority to avoid a historic default.
    Investors are concerned about the ramifications of a
shutdown and possible default on a still-fragile economic
recovery in the United States, Canada's largest trading partner.
    While the uncertainty was keeping the Canadian dollar stuck
in a range, along with other major currencies, the loonie has
the potential to benefit from some safe-haven buying if
risk-aversion enters the markets, said Dean Popplewell, chief
currency strategist at OANDA in Toronto.
    "If there's any risk being applied out there, certainly the
Canadian dollar will do a wee bit better," he said.
    The Canadian dollar was at C$1.0311, or 96.98 U.S.
cents, weaker than Thursday's close of 1.0313, or 96.96 U.S.
    Portfolio reshuffling heading into the end of the month and
quarter could also lead to some gyrations in the loonie, said
    "There's certainly a demand for U.S. dollars on most
people's books, and you will probably see an unexplained price
movement toward owning U.S. dollars" that could lead to some
selling in the Canadian dollar, said Popplewell. 
    While the budget impasse has shifted some attention away
from the U.S. Federal Reserve's surprising recent decision not
to scale back its massive bond purchases, investors continued to
sift through policymakers' comments for insight on when the Fed
may begin its stimulus wind-down.
    The Canadian dollar hit a three-month high in the wake of
the Fed's announcement last week, but has since pulled back.
    On Friday, Chicago Fed President Charles Evans said there
was a decent chance the central bank could reduce the pace of
its $85 billion a month in bond purchases this year, but there
were risks that could delay it to next year. 
    With the importance the labor market plays in the direction
of monetary policy, attention was already turning to next week's
U.S. unemployment report. The economy is expected to have added
180,000 jobs in September, while the unemployment rate is seen
edging up to 7.3 percent.
     Prices for Canadian government bonds were higher. The
two-year bond was up 1.2 Canadian cent to yield 1.210
percent. The benchmark 10-year bond rose 32 Canadian
cents to yield 2.551 percent.