* C$ touches as low as 96.39 U.S. cents
* Bank of Canada holds rates steady at 1 pct
* Bond prices flat to higher across curve (Adds Bank of Canada details, quote)
By Jennifer Kwan
TORONTO, Oct 19 (Reuters) - Canada's dollar fell more than 2 U.S. cents to its lowest level in more than three weeks against the U.S. dollar on Tuesday after the Bank of Canada left interest rates unchanged and cut its growth forecast.
The Canadian currency CAD=D4 touched C$1.0374 to the U.S. dollar, or 96.39 U.S. cents, its lowest level since Sept. 23. On Monday, it finished at C$1.0141, or 98.61 U.S. cents.
At 9:32 a.m. (1332 GMT), the Canadian dollar stood at C$1.0358 to the U.S. dollar, or 96.54 U.S. cents.
The Bank of Canada kept its benchmark interest rate unchanged at 1 percent, as expected, and cut its growth forecasts for 2010 and 2011 due to a slower than expected global economic recovery, saying "The economic outlook for Canada has changed." [ID:nN19118876] For full text, please see: [ID:nN19118393]
The central bank, which had raised the rate three times since June, also said inflation would be softer than expected.
"'The economic outlook for Canada has changed.' That's different: The bank expects the economic recovery to be more gradual than it had projected," said John Curran, senior vice president at CanadianForex.
"For them to come out and say that, that's making me think there's not going to be a rate hike any time soon and (the Canadian dollar) is going to suffer for it."
The Canadian dollar had already begun its descent before the Bank of Canada move, dragged lower after 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]
"I certainly think given all the events that have happened this morning, with China raising rates, it's certainly not good for the commodity currencies and probably puts the topside in Canada to be vulnerable," said Steve Butler, director of foreign exchange trading at Scotia Capital.
Canadian government debt prices were flat to higher with the two-year bond CA2YT=RR up 9 Canadian cents to yield 1.372 percent, while the 10-year bond CA10YT=RR climbed 8 Canadian cents to yield 2.749 percent. (Additional reporting by Ka Yan Ng; editing by Peter Galloway)