* Finance minister warns on C$ rise
* Comments trigger immediate selloff
* Bond prices end lower on U.S. data
TORONTO, Aug 4 (Reuters) - Canada's dollar ended higher on Tuesday but tumbled from the day's 10-month high after Canada's finance minister said steps could be taken to slow the currency's ascent.
In a strong warning, Finance Minister Jim Flaherty said the economic recovery in Canada could be damaged by the rapid rise in the currency. [ID:nN04143584]
The comments immediately knocked the Canadian dollar as low as C$1.0767 to the U.S. dollar, or 92.88 U.S. cents. Earlier on Tuesday it rallied as high as C$1.0632 to the U.S. dollar, or 94.06 U.S. cents, its highest level since Oct. 2.
Flaherty's remarks come about two weeks after the Bank of Canada said it stands ready to take further action to stimulate the economy, especially if a stronger Canadian dollar threatens growth. [ID:nN23196742]
"We've sort've seen it before and heard it before but these comments were a little more to the point and I think the market has got to step up and take some notice," said Steve Butler, director of foreign exchange trading at Scotia Capital.
"I get the feeling like we may have turned (lower) for at least a couple days and we'll have to figure out if the world has changed or not or if the market is really going to listen to the finance minister."
Still, the Canadian dollar managed to hang on for a higher close due to positive risk sentiment.
The Canadian dollar closed at C$1.0745 to the U.S. dollar, or 93.07 U.S. cents, up from Friday's close of C$1.0775 to the U.S. dollar, or 92.81 U.S. cents. Canadian markets were shut on Monday for the Civic Holiday, and that was when the Canadian dollar made the bulk of its sharp move higher.
The gains recorded on Monday, when the greenback fell against a basket of currencies and economic data from around the world was encouraging, proved enough to keep the Canadian dollar from ending lower in the latest session.
BOND PRICES DROP
Canadian bond prices finished lower across the curve as stronger-than-expected U.S. housing data left investors with little interest in safe-haven assets such as government debt.
The U.S. data showed pending sales of existing homes rose for a fifth straight month in June, the first such streak of advances in six years. [ID:nN04453698]
Part of the move lower was in response to Monday's slide in U.S. bond prices in the face of a global equity rally as optimistic reports on manufacturing and construction reinforced U.S. economic recovery hopes.
"Basically we're seeing better economic data in the U.S. and I can tell you that activity in Canada was very, very thin today," said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment. "The negative pull is from the U.S."
Canadian bond prices should get more domestic influence later in the week when jobs data on Friday offers the latest update on economic recovery.
The two-year Canadian bond dropped 6 Canadian cents to C$99.10 to yield 1.443 percent, while the 10-year bond lost 60 Canadian cents to C$101.75 to yield 3.537 percent.
The 30-year bond fell C$1.20 to C$116.07 to yield 4.021 percent. In the United States, the 30-year Treasury yielded 4.463 percent.
Canadian bonds underperformed U.S. Treasuries across most of the curve. The Canadian 30-year bond was about 41.9 basis points below the U.S. 30-year yield, compared with about 44.9 basis points below on Friday. (Editing by Peter Galloway)
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