CANADA FX DEBT-C$ sells off with risk on Portugal, China news

* C$ falls to C$0.9666

* Bond prices rise, track US Treasuries

TORONTO, July 6 (Reuters) - The Canadian dollar fell for the third straight session against the greenback on Wednesday morning, after Moody’s downgrade of Portugal’s credit rating to “junk” status on Tuesday and an overnight interest rate hike in China sparked selling of risky assets.

Peripheral euro zone debt worries flared up again as risks of a contagion returned to investors’ radar after the Portugal downgrade caught the market off guard. [nL6E7I60XH]

Also, China raised interest rates for the third time this year on Wednesday, making clear that taming inflation remains a top priority even as its vast economy gently eases. [nL3E7FK17V]

“Overall we’re just seeing that the market is shedding risk today over fears of Portugal, broader contagion fears within Europe, as well as an interest rate hike out of China,” said Camilla Sutton, chief currency strategist at Scotia Capital.

The news out of Portugal and China sent commodities such as oil lower, weighing on Canada’s resource-based currency, added Sutton.

At 9:17 a.m. (1317 GMT), the currency CAD=D4 was at C$0.9666 to the U.S. dollar, or $1.0346, down from Tuesday's North American finish at C$0.9632 to the U.S. dollar, or $1.0382. Sutton expects the day's range to fall between C$0.9600 and C$0.9700.

U.S. ISM data for the non-manufacturing sector due at 10 a.m. (1400 GMT) will be watched, particularly for the employment component ahead of the ADP private sector payrolls data on Thursday and jobs reports on both sides of the border on Friday.

Market players are also awaiting a monetary policy announcement by the European Central Bank on Thursday. The ECB is all but guaranteed to raise interest rates by 25 basis points to 1.5 percent, but investors remain uncertain whether it will signal that further rates may be in store later this year.

Canadian bond prices rose across the curve, following some of the moves by their U.S. Treasury counterparts, extending gains from the previous session as the safe-haven appeal of government bonds ended a recent sell-off. [US/]

The two-year bond CA2YT=RR rose 10 Canadian cents to yield 1.513 percent, while the 10-year bond CA10YT=RR gained 30 Canadian cents to yield 3.035.

Reporting by Claire Sibonney, Editing by Chizu Nomiyama