* C$ ends session at C$1.0106 or 98.95 U.S. cents
* Bonds fall across the curve
By John McCrank
TORONTO, Oct 12 (Reuters) - The Canadian dollar gained against the greenback on Tuesday after minutes from the U.S. Federal Reserve's latest meeting confirmed that the U.S. central bank would likely soon inject the markets with cash to support the flagging economy.
Fed officials said in their Sept. 21 policy-setting session that they had a "sense that (more) accommodation may be appropriate before long," including buying additional longer-term Treasury securities. [ID:nN12191658]
"The Fed is lining up for quantitative easing, and by that token, the market is getting rather beside itself with enthusiasm, so the Canadian dollar is up and and equities are higher," said Eric Lascelles, chief Canada macro strategist at TD Securities.
Stock markets recovered from earlier losses, with the Toronto Stock Exchange hitting a two-year high and the Dow Jones industrial average hitting a five-month high, after the minutes were released. [ID:nTZOCLE66Q] [ID:nN12202167]
The Canadian dollar CAD=D4 closed the North American session at C$1.0106 to the U.S. dollar, or 98.95 U.S. cents, up slightly from Friday's finish at C$1.0113 to the U.S. dollar, or 98.88 U.S. cents, before the Canadian Thanksgiving and U.S. Columbus Day long weekends.
The currency hit a high of C$1.0089, or 99.12 U.S. cents, after the Federal Open Market Committee released its minutes.
Among major currencies, the Canadian dollar was one of weakest performers against the greenback, which fell on prospects of the Fed printing more money to buy assets, said Shane Enright, a currency strategist at CIBC World Markets.
"The primary risk (to Canada's economic growth) is the U.S. economy and relatively small growth in the U.S. economy," Finance Minister Jim Flaherty told reporters after a speech in Mississauga, Ontario. [ID:nN12187547]
Canada is heavily dependent on the U.S. economy, which takes in about three-quarters of its exports.
Flaherty said on Tuesday the federal deficit would narrow to C$45.4 billion, or 2.8 percent of GDP, in the current fiscal year, ending March 2011. It said the deficit would shrink steadily to C$1.7 billion in 2014-15 and become a surplus of C$2.6 billion in 2015-16.
Government bond prices fell on Tuesday, which may be partly a result of dashed market expectations for a smaller government deficit after strong economic growth early in the year, said Lascelles.
"There was the opinion that the deficit might have been closer to C$40 billion as opposed to settling closer to C$45 billion for 2010-11," he said. "You are not really any more ahead despite a zippy start to the fiscal year."
The two-year bond CA2YT=RR fell 11 Canadian cents to yield 1.377 percent, while the 10-year bond CA10YT=RR tumbled 40 Canadian cents to yield 2.727 percent. (Editing by Rob Wilson)