CORRECTED-CANADA FX DEBT-C$ weakens but recovers from the worst of volatile week

(Corrects name of the corporate dealer's company in sixth
    * Canadian dollar at C$1.1277 or 88.68 U.S. cents
    * Bond prices lower across the maturity curve

    By Leah Schnurr
    TORONTO, Oct 17 (Reuters) - The Canadian dollar weakened
modestly against the greenback on Friday, consolidating as world
markets ended the week on a calmer note after days of being
rocked by worries about the health of the global economy.
    The loonie had only a muted reaction to data that showed
Canada's inflation rate came in at the Bank of Canada's target
of 2 percent in September, reinforcing analysts' expectations
that the central bank will maintain a neutral stance in its
policy statement next week. 
    Despite the day's decline, the Canadian dollar recovered
from the worst of losses this week that were spurred by a dive
in oil prices and by uncertainty about global growth. The
currency hit a more than five-year low on Wednesday.
    The Canadian dollar has lost about 6 percent since July,
largely driven by a strong rally in the U.S. dollar, though
selling intensified in recent sessions as the global concerns
gripped the market.
    Still, many analysts believe that the trend of U.S. dollar
strength has been interrupted only temporarily, which will
likely mean further loonie weakness ahead.
    "Long term, I think the U.S. dollar is still bullish and it
does look like the rally is intact," said Lennon Sweeting,
corporate dealer at USForex.
    "I also think the U.S. Federal Reserve will likely raise
rates well ahead of the Bank of Canada, which would push the
dollar higher against the Canadian dollar, but that's a
long-term projection."
    The Canadian dollar ended the North American
session at C$1.1277 to the greenback, or 88.68 U.S. cents,
weaker than Thursday's close of C$1.1248, or 88.90 U.S. cents.
For the week, the loonie lost about 0.7 percent.
    Although the currency broke through the C$1.1279 level
earlier this week, which had previously been the low for the
year, it failed to sustain that move, which will likely leave it
trading in a range for the short term, Sweeting said.
    Attention at home was shifting towards the Bank of Canada
policy statement to be released Wednesday, along with the bank's
updated economic projections. Investors will be looking for any
reaction from the bank to the recent market turmoil.
    The bank is expected to hold rates at 1 percent, where they
have been for four years, until the third quarter of next year.
    "I don't think the Bank of Canada is going to shock markets;
they're going to continue exercising caution," Sweeting said.
    Canadian government bond prices were lower across the
maturity curve, with the two-year down 9-1/2 Canadian
cents to yield 0.978 percent and the benchmark 10-year
 down 23 Canadian cents to yield 1.953 percent.

 (Editing by Peter Galloway)