* C$ hits session low of 97.34 U.S. cents
* Bonds prices lower across curve
By Claire Sibonney
TORONTO, Oct 19 (Reuters) - The Canadian dollar slid against its U.S. counterpart on Tuesday as the greenback picked up steam after China's unexpected monetary tightening while investors cautiously awaited the Bank of Canada's own interest rate decision later in the morning.
China's central bank surprised the market with its first increase of interest rates in nearly three years, a move that reflects its concern about rising domestic asset prices and stubborn inflation. [ID:nTOE63E07V]
Shortly following China's announcement, the Canadian currency CAD=D4 hit a session low of C$1.0273 to the U.S. dollar, or 97.34 U.S. cents, more than a penny off of Monday's finish at C$1.0141, or 98.61 U.S. cents.
"Bank of China hiking by a quarter has the market caught a little bit off guard," said C.J. Gavsie, managing director of foreign exchange sales at BMO Capital Markets.
"It's not a surprise that they have done so with respect to the economic releases that we've seen but on the other hand we have not been watching China rates as close as ... our own domestic rates."
The market is betting on a near certainty that Canada's central bank will hold its key policy rate at 1 percent in its scheduled announcement at 9 a.m. (1300 GMT), while the tone of its statement will be closely followed for further direction. [ID:nN15144891]
Gavsie said he was looking for some slightly hawkish tones in the statement that could see the Canadian dollar strengthen in reaction, although the China news would dominate global currency markets for the rest of the day.
"I don't think it's ... going to have us running towards parity in a hurry, but I wouldn't be surprised to see another test of the C$1.02 level," he added.
Gavsie noted that C$1.0185 is a key technical level that the currency must breach to resume its strengthening trend.
At 8:13 a.m. (1213 GMT), the Canadian dollar stood at C$1.0254 to the U.S. dollar, or 97.52 U.S. cents.
Canadian government debt prices fell, tracking U.S. Treasuries lower as stock futures trimmed losses. [US/]
The two-year bond CA2YT=RR was off 1 Canadian cent to yield 1.421 percent, while the 10-year bond CA10YT=RR shed 17 Canadian cents to yield 2.778 percent. (Reporting by Claire Sibonney; editing by Jeffrey Hodgson)