CANADA FX DEBT-C$ ends almost a penny higher after rate hike

   * Bank of Canada raises rate, sees slower recovery

 * C$ jumps to 96.40 U.S. cents

 * Bonds fall as BoC statement more balanced than expected
 (Adds details)

 TORONTO, Sept 8 (Reuters) - The Canadian dollar finished
nearly a penny higher against the U.S. currency on Wednesday
after the Bank of Canada raised interest rates and kept open
the possibility of further near-term rate hikes, while bonds
fell sharply.

 The Bank of Canada raised its key interest rate by 25 basis
points for a third straight time this year, bringing the rate
to 1 percent, but it cautioned that a weak U.S. economy would
hamper Canada's recovery. For more see [ID:nN08241537]
[ID:nN0898286].

 Still, market analysts found the statement to be more
balanced than expected, which lit a fire under the Canadian
currency and sparked a selloff in bonds.

 "The statement didn't shut any doors. They continue to
monitor the data in these highly uncertain times. The language
noted some high uncertainty and they also noted the extremely
accommodative monetary conditions," said Sacha Tihanyi,
currency strategist at Scotia Capital.

 "It just goes to show that it's a very uncertain
environment. The pace of rate increases is not obvious."

 The Canadian dollar CAD=D4 finished at C$1.0374 to the
U.S. dollar, or 96.40 U.S. cents, up from Tuesday's close of
C$1.0480 to the U.S. dollar, or 95.42 U.S. cents.

 The currency had jumped as high as 96.66 U.S. cents, but
pared gains after the U.S. Federal Reserve's Beige Book report
showed growth eased in the six weeks through the end of August,
suggesting the recovery was faltering along the East Coast and
in the Midwest. [ID:nWAL8KE6JM]

 The two-year Canada bond CA2YT=RR dropped 29 Canadian
cents to yield 1.418 percent, while the 10-year bond
CA10YT=RR shed C$1.07 to yield 3.050 percent. Canadian bonds
underperformed their U.S. counterparts across the curve.

 The rate decision was one of the closer calls for the
central bank in some time, and while market watchers said the
bank's statement did not shut down the possibility of more rate
hikes in the near term, market pricing on Wednesday favored no
change in rates.

 According to a Reuters calculation on yields on overnight
index swaps, the probability of the bank leaving rates
unchanged at its next policy announcement date in October faded
to about 68 percent at the end of Wednesday's session from
around 90 percent, right after the rate decision. BOCWATCH

 The pricing is in line with a Reuters poll of Canada's 12
primary dealers after the rate announcement, which showed most
sticking to previous forecasts that the central bank will leave
interest rates steady for the rest of the year after a
September hike. Some of the respondents said their forecasts
were under review. [CA/POLL]

 "Granted, there's a possibility of a hike still over the
next several decisions but I don't see any conviction from the
bank quite yet," said Eric Lascelles, chief macro strategist at
TD Securities.

 He noted that Bank of Canada Governor Mark Carney has
several speaking engagements in the next month and that he will
closely parse the bank chief's comments as well as monitor the
incoming data.

 This Friday, Carney will be participating in the Spruce
Meadows Changing Fortunes Round Table in Alberta. His comments
will follow Canada's August figures for employment. They are
expected to show the economy added 30,000 jobs in the month.
[ID:nN03113893]

 The currency held gains after data showed purchasing
activity in the Canadian economy jumped much more than expected
in August. [ID:nN08101283]
 (Editing by Peter Galloway)