CANADA FX DEBT-C$ sinks to 4-1/2 year low on U.S. rate hike concern

* Canadian dollar at C$1.1263 or 88.79 U.S. cents
    * Bond prices lower across the maturity curve

    By Leah Schnurr
    TORONTO, March 20 (Reuters) - The Canadian dollar weakened
to a 4-1/2 year low against the greenback on Thursday, hurt by
the combination of a dovish Bank of Canada and concerns the
United States could raise interest rates sooner than had been
    Federal Reserve Chair Janet Yellen said on Wednesday the Fed
will probably end its massive bond-buying program this fall, and
could start raising interest rates around six months later.
    The possibility of a U.S. rate hike sooner than many had
anticipated weighed heavily on global stocks and drove the U.S.
dollar higher. 
    The rethink on U.S. rates comes at a time when the Bank of
Canada has left the door open to a possible rate cut and that
divergence pressured the loonie, which was weaker for the third
session in a row. 
    "That's a perfect storm that pushed us decisively through
C$1.12 over the last couple days," said David Tulk, chief Canada
macro strategist at TD Securities in Toronto.
    The Canadian dollar was at C$1.1263 to the
greenback, or 88.79 U.S. cents, weaker than Wednesday's close of
C$1.1245, or 88.93 U.S. cents. The currency traded as low as
C$1.1279, its weakest since July 2009. 
    Bank of Canada Governor Stephen Poloz warned of the risk of
a prolonged period of sluggish growth and low interest rates in
a speech earlier this week that analysts said was more dovish
than expected. 
    When asked whether he could rule out a rate cut, Poloz said
he could not, which markets latched on to and sent the Canadian
dollar lower.
    "Poloz is recognizing that the only way to grow the Canadian
economy at this point is through the export channel, so even
though he won't admit it, he would like to see a weaker
currency," Tulk said.
    The loonie has traded in a relatively narrow range in recent
weeks, consolidating after a sharp selloff in January. Some
analysts expect the current move lower could mark a return of
the bearish sentiment prevalent at the start of the year.
    "It seems like the more likely direction is obviously for
more Canadian dollar weakness," Tulk said.
    Canadian government bond prices were lower across the
maturity curve, with the two-year down 3 Canadian
cents to yield 1.078 percent and the benchmark 10-year
 down 15 Canadian cents to yield 2.494 percent.

 (Editing by Peter Galloway)