* C$ hits highest level since Dec. 7, pares gains
* Sits at 99.50 U.S. cents ahead of Bank of Canada speech
* Bank Governor Carney's speech expected to be dovish
* Canadian bond prices flat to lower (Adds details)
TORONTO, Dec 13 (Reuters) - The Canadian dollar rallied to near a one-week high against its U.S. counterpart on Monday morning, lifted by a slightly weaker greenback and commodity prices that firmed on strong Chinese economic data.
Chinese industrial output in November beat expectations, while inflation climbed to a 28-month high. The upbeat data helped to send commodities higher. [ID:nBJL002113] [ID:nL3E6ND0F6] [O/R] [GOL/]
"Stronger economic news out of China got the ball rolling," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
"The U.S. dollar itself is weaker along with the Japanese yen. So the Canadian dollar along with other commodity-based currencies are all trading higher this morning."
At 9:35 a.m. (1435 GMT), the Canadian dollar CAD=D4 was at C$1.0050 to the U.S. dollar, or 99.50 U.S. cents, up from Friday's finish of C$1.0094 to the U.S. dollar, or 99.07 U.S. cents.
The currency added to gains after data showed Canada's industrial capacity use pushed to a higher-than-expected 78.1 percent in the third quarter, suggesting businesses are coping with a stronger currency. [ID:nN13189872]
It reached as high as C$1.0028 to the U.S. dollar, or 99.72 U.S. cents, its highest point since Dec. 7.
CARNEY EXPECTED TO BE DOVISH
Market focus was on a speech by Bank of Canada Governor Mark Carney later on Monday. The speech, "Reflections on the Economic Outlook", is expected to be followed by a press conference.
Carney may offer hints on when the bank's stalled rate-hike campaign may resume given the economy's decelerating growth. Last week, the central bank held its key interest rate steady and said Canada's trade-reliant economy is recovering more slowly than the bank had projected.
"It shouldn't be too much of a deviation. The only offset could be the news from the fiscal side in the U.S., which I think has caused a lot of people to revise up growth in the U.S. and through that, Canada as well," said TD Securities senior macro strategist David Tulk.
He added that rate hikes will probably resume in July but said that if Carney dwells on recent U.S. stimulus moves and their effect on the Canadian economy, that will serve as a "hawkish counterpoint" and perhaps point to an earlier interest rate increase.
Canadian bond prices were largely flat to lower, tracking the prices of U.S. Treasuries, which edged down as investors sold bonds in anticipation of higher growth and deeper deficits in the United States. [US/]
The two-year bond CA2YT=RR ticked 4 Canadian cents lower to yield 1.740 percent, while the 10-year bond CA10YT=RR was down 20 Canadian cents to yield 3.339 percent. (Reporting by Ka Yan Ng and Jennifer Kwan; editing by Peter Galloway)