CANADA FX DEBT-C$ touches 4-1/2-year low as emerging markets steady

* Canadian dollar at C$1.1164 or 89.57 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, Jan 28 (Reuters) - The Canadian dollar touched a
4-1/2-year low on Tuesday as stabilization in emerging markets
allowed investors to resume selling the loonie as the focus
returned to bearish domestic factors.
    A policy shift from the Bank of Canada late last year has
weighed on the loonie in recent months and has fueled market
expectations that interest rates will stay low for some time.
Selling intensified last week after the central bank left the
door open to a rate cut. 
    Recent comments from the central bank that the Canadian
dollar was still strong and that its strength still posed an
obstacle to exports have added pressure to the currency.
    The Canadian dollar got a respite late last week from
selling after a sell-off in emerging markets gave the loonie
some safe haven appeal. But as those markets steadied on
Wednesday, the Canadian dollar was out of favor again.
    "The overall Canadian dollar story is still very much
favoring the bearish side," said Camilla Sutton, chief currency
strategist at Scotiabank in Toronto.
    "All in all, what we're seeing is a retracement of the risk
aversion move, so as we've had the prospects for the emerging
markets stabilize a little bit, what it also does is it then in
turn allows the Canadian dollar to go back to where it was." 
    An unexpected drop in durable goods south of the border also
weighed on the Canadian dollar, said Sutton. Analysts are
looking for a pick up in the U.S. economic recovery this year to
eventually lend some strength to Canada's economy. 
    The Canadian dollar was at C$1.1164 to the
greenback, or 89.57 U.S. cents, weaker than Monday's close of
C$1.1112, or 89.99 U.S. cents. The loonie touched a session low
of C$1.1177, its lowest level since July 2009.
    With the Canadian economic calendar light this week, focus
was turning toward the U.S. Federal Reserve's two-day
policy-setting meeting that will get underway on Tuesday.
Markets expect the Fed is likely to trim another $10 billion a
month from its bond-buying program, which will leave its monthly
purchases at $65 billion a month. 
    The only piece of domestic data this week will be monthly
Canadian gross domestic product due on Friday.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 0.7 Canadian
cent to yield 0.979 percent and the benchmark 10-year
 up 8 Canadian cents to yield 2.417 percent.