CANADA FX DEBT-C$ weakens as economy stalls, denting rate hike prospects

    * Canadian dollar at C$1.2458, or 80.27 U.S. cents
    * Data shows no growth in Canada's July GDP
    * Bond prices higher across the yield curve
    * Canada-U.S. 2-year spread narrows by 4.7 basis points

    By Fergal Smith
    TORONTO, Sept 29 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Friday after domestic data
showed the economy stalled in July, further dampening prospects
of a another interest rate hike by the Bank of Canada next
    Canada's economy was unchanged in July following eight
consecutive months of growth, including a 0.3 percent increase
in June, Statistics Canada said.
    "This report is consistent with the widely expected
moderation in growth during the second half of this year," said
Ryan Brecht, a senior economist at Action Economics.    
    The Bank of Canada raised rates in July and September after
the country's growth accelerated in the first half of the year.
    But chances of another increase next month edged lower after
Friday's data, to around 20 percent, the overnight index swaps
market indicated. They were 40 percent before a speech on
Wednesday by Bank of Canada Governor Stephen Poloz that analysts
said was dovish.            
    Both Poloz and Deputy Governor Tim Lane have helped talk
down the Canadian dollar in recent weeks after the currency's
strength put growth at risk.             
    At 9:14 a.m. EDT (1314 GMT), the Canadian dollar         
was down 0.3 percent at C$1.2458 to the greenback, or 80.27 U.S.
    The currency traded in a range of C$1.2417 to C$1.2480. On
Thursday it touched a four-week low at C$1.2519.
    Losses for the loonie came even as the U.S. dollar       
dipped against a basket of major currencies, pressured by data
showing almost no increase in U.S. consumer spending for August.
    The price of oil, one of Canada's major exports, edged lower
despite tensions around Iraqi Kurdistan that threatened the
region's crude supplies.             
    U.S. crude        was down 0.23 percent at $51.44 a barrel.
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 8.5 Canadian cents to
yield 1.495 percent and the 10-year             rising 39
Canadian cents to yield 2.083 percent.
    The gap between the two-year yield and its U.S. equivalent
narrowed by 4.7 basis points to a spread of 4 basis points.
Earlier this month the spread reached its widest since January
2015 at 24.8 basis points.

 (Reporting by Fergal Smith; Editing by Lisa Von Ahn)