* Canadian dollar benefits from weak greenback
* Thursday's CPI data and Bank of Canada speech in focus
* Bond prices extend rebound through second session
By Frank Pingue
TORONTO, June 17 (Reuters) - The Canadian dollar closed at its highest level against the U.S. dollar in more than two weeks on Tuesday as soft economic data dampened expectations of a U.S. Federal Reserve interest rate cut and rattled the greenback.
Domestic bond prices rose across the curve and continued to reclaim more of the steep losses suffered last week, given the curbed rate-hike expectations in the United States.
The Canadian dollar closed at C$1.0171 to the U.S. dollar, or 98.32 U.S. cents, up from C$1.0225 to the U.S. dollar, or 97.80 U.S. cents, at Monday's close.
Late in the session the currency rallied to C$1.0168 to the U.S. dollar, or 98.35 U.S. cents, but could not manage to break out of the range it has occupied for much of the year.
Still, it recorded a 0.5 percent gain for the session, its biggest percent gain in a session since April 21.
But, just like on Monday, the Canadian currency's rise was pegged more to a weak greenback after U.S. data and a pair of media reports prompted some market participants to scale back expectations for an early Fed rate hike.
"We really didn't have any interesting news out of Canada today and certainly the U.S. dollar retreated a little bit for most of the session so that helped Canada," said Steve Butler, director of foreign exchange trading at Scotia Capital.
"It feels to me now like the market is in a bit of a quandary about what the Fed is going to be doing when they meet in a week or so."
The dampened talk of Fed rate hikes came after reports in Tuesday's Wall Street Journal and Financial Times cited senior Fed officials who said the U.S. central bank was unlikely to raise rates in the next few months unless the inflation outlook worsened.
Meanwhile, the latest U.S. data showed May's core consumer prices matched expectations while housing starts decreased, which added to the downward pressure on the greenback and opened the door for the Canadian dollar to rally.
Domestic data showed foreigners purchased C$9.75 billion of Canadian securities in April, the highest since November 2006, which gave a mild bid tone to the Canadian dollar.
Key events in Canada that will be watched closely by market participants are Thursday's May consumer price index data and Bank of Canada Governor Mark Carney's speech in Calgary.
Carney, who will be giving his first speech since the central bank unexpectedly left its key interest rate steady, will speak on "Capitalizing on the Commodity Boom: The Role of Monetary Policy" after markets close on Thursday.
BOND PRICES HIGHER
Canadian bond prices benefited from investors who developed a bigger appetite for more secure assets like government debt as the idea of U.S. interest rate hikes became less likely.
The Fed, which has slashed its key federal funds rate since last year, will set interest rates next week.
"Bonds are largely reflecting the Fed downplaying market expectations of near term tightening," said Sal Guatieri, senior economist at BMO Capital Markets.
Guatieri also said the weaker data on industrial production and housing stats offered a bid to the bigger U.S. Treasury market which carried over into the domestic bond market.
The two-year bond climbed 18 Canadian cents to C$100.89 to yield 3.274 percent. The 10-year bond gained 35 Canadian cents to C$101.23 to yield 3.836 percent.
The yield spread between the two-year and 10-year bond was 56.2 basis points, up from 51.4 at the previous close.
The 30-year bond rose 39 Canadian cents to C$113.64 for a yield of 4.183 percent. In the United States, the 30-year treasury yielded 4.778 percent.
The three-month when-issued T-bill yielded 2.70 percent, down from 2.79 percent at the previous close.