CANADA FX DEBT-C$ hits 5-1/2 month high, encouraged by China data

* Canadian dollar at C$1.0726 or 93.23 U.S. cents
    * Bond prices lower across the maturity curve

 (Adds details on trading activity, quotes, updates prices)
    By Leah Schnurr
    TORONTO, June 23 (Reuters) - The Canadian dollar firmed to
its highest level against the greenback since the start of the
year on Monday as data that showed China's factory sector
expanded in June helped the currency extend last week's
    The loonie has gained in five of its last six sessions, and
was spurred higher on Friday by data that showed an unexpectedly
strong increase in Canadian inflation for May and robust retail
sales in April. 
    With little on the domestic economic calendar this week,
investors were taking their cues from overseas. The pickup in
activity in China's factories, albeit at a modest pace, was the
first in six months. The purchasing managers' index (PMI)
figures beat expectations and gave new signs that the world's
second-largest economy is stabilizing. 
    The Canadian dollar is often sensitive to economic data from
China, which is a major consumer of natural resources. 
    "The move into expansionary territory for Chinese PMI for
the first time this year has definitely been a good boost for
the loonie as it increases the prospects for the export sector
moving forward," said Scott Smith, senior market analyst at
Cambridge Mercantile Group in Calgary.
    The Canadian dollar ended the North American
session at C$1.0726 to the greenback, or 93.23 U.S. cents,
stronger than Friday's close of C$1.0752, or 93.01 U.S. cents.
The currency hit a session high of C$1.0717, its highest level
since early January, a period in which the loonie was in the
midst of a sharp selloff.
    Despite the momentum that has pushed the loonie out of its
recent trading range, the strength is likely to taper off,
leaving the currency to trade sideways once again, said Rahim
Madhavji, president at in Toronto.
    He added that while the currency should hold on to its
gains, it won't be able to move significantly higher without a
shift in the Bank of Canada's neutral policy stance, which is
unlikely to happen in the near term.
    "That's the only point where we're going to start to see the
loonie take off," he said.
     Weak euro zone business activity data prompted investors to
sell the euro, pushing it down to C$1.4587. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year off 2-1/2 Canadian
cents to yield 1.142 percent, while the benchmark 10-year
 was down 33 Canadian cents to yield 2.333 percent.

 (Editing by Peter Galloway)