* C$ rises to C$0.9909 to the U.S. dollar, or $1.009
* Macklem: "risky business model" to assume C$ will fall
* Canada trims 2011 growth forecast to 2.4 pct
* Bonds softer across the curve as investors eye data (Adds details)
By Ka Yan Ng
TORONTO, Feb 1 (Reuters) - Canada's dollar neared a two-week high against a broadly weaker U.S. dollar on Tuesday, spurred by strong manufacturing data that lifted hopes the economic recovery was gaining traction and fed risk appetite.
After grinding higher in the overnight session, the currency extended gains quickly after the Institute for Supply Management said the U.S. manufacturing sector grew at its fastest pace in nearly seven years last month.
That came on the heels of upbeat U.S. Midwest factory activity and consumer spending figures on Monday. The latest data was seen as good news for Canada, which relies heavily on the much bigger U.S. market to buy most of its exports.
"It's a classic risk-on day inspired in large part by the absolutely fantastic performance of the ISM indicator in the U.S., and not just in the headline," said David Tulk, chief Canada macro strategist at TD Securities.
"It was generally a very positive assessment about the global economy from purchasing managers ... and it's one of these days where the U.S. dollar is universally weak across the board."
The Canadian currency CAD=D4 finished at C$0.9909 to the U.S. dollar, or $1.009, up from C$1.0015 to the U.S. dollar, or 99.85 U.S. cents on Monday, when it had finished below parity for a second straight session.
It reached its highest level since Jan. 19 at C$0.9900 to the U.S. dollar, or $1.0101, just before Ottawa lowered its 2011 growth estimate to 2.4 percent from 2.5 percent, based on the median of private sector forecasters. It sees the economy growing at 2.8 percent in 2012, unchanged from its previous estimate. [ID:nN01111178]
"That's broadly consistent with what we expect. It's a reasonably conservative approach to understanding the likelihood of a budget coming into balance over the next five to six years," said Tulk.
Separately, the Bank of Canada urged corporate Canada to invest and lower costs to stay competitive. The latest remarks by Senior Deputy Governor Tiff Macklem echoed those of Governor Mark Carney, who recently said the private sector was losing competitiveness and U.S. market share due to poor productivity and high labor costs. [ID:nN27191953]
No Canadian data is expected until the end of the week when Statistics Canada releases the employment report for January. On average, analysts expect a gain of 15,000 jobs in the month, according to Reuters estimates. The jobless rate is expected to remain steady at 7.6 percent. [ID:nN28144465]
Finance Minister Jim Flaherty repeated on Tuesday his concerns that the economic recovery remains fragile and that it could be difficult to lower the unemployment rate.
BOND PRICES SAG
Canadian bond prices ended lower across the curve, in line with the U.S. Treasury market, after the robust U.S. ISM data weakened investor appetite for safe-haven government debt.
"Bonds have taken quite a shellacking after the strong ISM number," said Sal Guatieri, senior economist at BMO Capital Markets. "It seems to have spurred a wave of equity buying on both sides of the border."
The Toronto Stock Exchange's S&P/TSX composite index gained 1.19 percent, while the Dow Jones industrial average rose 1.25 percent.
The two-year bond CA2YT=RR dropped 10 Canadian cents to yield 1.708 percent, while the 10-year bond CA10YT=RR shed 50 Canadian cents to yield 3.336 percent. (Additional reporting by John McCrank; editing by Rob Wilson)