CANADA FX DEBT-C$ pares losses as economy contracts less than expected

* Canadian dollar at C$1.2723 or 78.60 U.S. cents
    * Bond prices mostly higher across the maturity curve

    By Solarina Ho
    TORONTO, March 31 (Reuters) - The Canadian dollar weakened
against the greenback on Tuesday but was well off its early lows
after data showed Canada's economic performance in January was
stronger than foreseen.
    The economy shrank by a less-than-expected 0.1 percent in
the first month of the year as a slump in service-industry
activity was offset by a rebound in oil and gas extraction.
    The consensus view had been for a 0.2 percent slide, but
markets had been bracing for an even weaker number, particularly
after Bank of Canada Governor Stephen Poloz said in an interview
published on Monday that 2015's first quarter will look
"atrocious" due to the fallout from the plunge in the price of
oil, a major Canadian export. 
    "We have seen a little bit of a rally here. Over the past
couple of days anticipation of a bad number has been weighing on
Canada as much as commodity prices have also taken a toll," said
Don Mikolich, executive director, foreign exchange sales at CIBC
World Markets.
    "Any number worse than consensus at least, we could've been
pushing up to year (dollar) highs, on our way to the $1.30
handle, which some people have as a medium-term target."
    At 9:20 a.m. (1320 GMT), the Canadian dollar was 
at $1.273 to the U.S. dollar, or 78.60 U.S. cents, roughly half
a cent stronger than immediately before the data's release, but
still weaker than Monday's finish of C$1.2693, or 78.78 U.S.
    Earlier the currency had weakened almost a full cent amid a
U.S. dollar rally and a drop in U.S. crude prices below $48 a
    "The U.S. dollar index has been seeing some gains across the
board. There's been enough (global) uncertainties ... it's still
been a very pro-U.S. dollar environment," said Mikolich, adding
that crude prices were also putting a cap on Canadian dollar
    Iran and six world powers entered a final day of
negotiations on Tuesday over a nuclear deal that could see Iran
increase oil exports to an already well-supplied market.
Meanwhile, U.S. commercial crude stocks are anticipated to have
risen to a record high for a 12th week, according to a Reuters
    Canadian government bond prices were mostly lower across the
maturity curve, with the two-year falling 3.5
Canadian cents to yield 0.526 percent and the benchmark 10-year
 slipping 13 Canadian cents to yield 1.385 percent.

 (Editing by Peter Galloway)