CANADA FX DEBT-C$ strengthens as solid data offsets reduced risk appetite

* Canadian dollar at C$1.3112, or 76.27 U.S. cents
    * Bond prices mixed across the maturity curve
    * 10-year yield touches a fresh historic low at 0.904

    By Fergal Smith
    TORONTO, Sept 30 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Friday as its
economy grew more than expected in July, offsetting a reduction
in risk appetite as shares of Germany's biggest bank slumped.
    Canada's gross domestic product grew 0.5 percent in July,
fueled by a rebound in oil and gas extraction that had been
disrupted by wildfires in Alberta earlier this year, data from
Statistics Canada showed. The growth in the economy topped
analysts' forecasts for a gain of 0.3 percent. June's growth was
unrevised at 0.6 percent. 
    "All in all a solid report ... it should definitely push
back against some of the recent pessimism we see in the market,"
said Andrew Kelvin, senior rates strategist at TD Securities.
    The implied probability of an interest rate cut by mid-2017
fell to roughly 30 percent from nearly 50 percent before the
report, overnight index swaps data showed.    
    Oil firmed, helped by an agreement this week by the
Organization of the Petroleum Exporting Countries to limit crude
output at its policy meeting in November. U.S. crude 
prices were up 0.23 percent at $47.94 a barrel. 
    Still, reduction in risk appetite restrained gains for
Canada's commodity-linked currency as investors worried about
the health of Deutsche Bank. 
    At 9:11 a.m. EDT (1311 GMT), the Canadian dollar 
was trading at C$1.3112 to the greenback, or 76.27 U.S. cents,
stronger than Thursday's close of C$1.3149, or 76.05 U.S. cents.
    The currency's strongest level of the session was C$1.3103,
while its weakest was C$1.3195.
    On Tuesday, the loonie hit its weakest in nearly six months
at C$1.3281, pressured by recent disappointing domestic economic
data and a more dovish tone from the Bank of Canada.
    In other domestic data, producer prices unexpectedly fell in
August as meat and dairy products saw the largest decrease in
nearly nine years, while lower prices for energy and petroleum
products also weighed, data from Statistics Canada showed.
    Canadian government bond prices were mixed across the yield
curve, with the two-year down 1.5 Canadian cents to
yield 0.503 percent and the benchmark 10-year rising
6 Canadian cents to yield 0.948 percent.
    Earlier, the 10-year yield touched a fresh historic low at
0.904 percent.

 (Reporting by Fergal Smith; Editing by Nick Zieminski)