* C$ falls to $0.9597 to U.S. dollar, or $1.0420
* Hits lowest since July 18 after U.S. deal, economic woes
* U.S. consumer spending falls unexpectedly
By Andrea Hopkins
TORONTO, Aug 2 (Reuters) - The Canadian dollar fell to its weakest level since July 18 on Tuesday morning after U.S. data showed consumer spending fell in June, adding to a sell-off of the Canadian currency that came after the U.S. budget deal.
Two days of weak U.S. data shifted investor focus back to tepid growth prospects for Canada's largest trading partner and followed a weekend deal by U.S. lawmakers that will lead to more than $2 trillion in spending cuts.
The Canadian currency was at $0.9597 to the U.S. dollar, or $1.0420, in early trade, down from the C$0.9555 close on Friday. Canadian markets were closed on Monday for a civic holiday.
The currency hit its weakest point since July 18 earlier in the session, at C$0.9619, after U.S. data showed consumer spending fell unexpectedly in June, dimming growth prospects.
"The market has been busy trying to digest everything going on the U.S. and the supposed relief over the debt situation being resolved, pending today's vote, was very short-lived," said Steve Butler, director of foreign exchange trading at Scotia Capital.
An 11th-hour deal to raise the U.S. debt ceiling cleared its biggest hurdle in the House of Representatives, staving off the prospect of a calamitous default but failing to allay fears that Washington could still lose its coveted triple-A credit rating. [ID:nN1E76U0F5]
Butler said grim U.S. manufacturing data on Monday worried investors as has continued debt uncertainty in Europe. Slowing global growth will make it hard for Canada's export-oriented economy to gain traction, making it less likely that the Bank of Canada will raise rates in 2011.
A U.S. government report on Tuesday showed consumer spending dropped in June for the first time in nearly two years as incomes barely rose, suggesting economic growth could remain subdued in the third quarter. [ID: nN1E7710A7]
"A couple of weeks ago the market was talking about a more hawkish Bank of Canada Governor (Mark) Carney, and now we're talking about the fact that the prospects for another rate hike in 2011 in Canada look quite slim, and I think that's taken a little shine of Canadian dollar," Butler said.
A Reuters poll conducted last week showed most of Canada's primary dealers still expected the central bank to raise interest rates in September or October. [CA/POLL]
Stock markets were also taking a beating in the wake of the U.S. budget deal. World stocks hit a one-month low on Tuesday and Wall Street opened as investors fretted about the possibility of a U.S. credit downgrade on top of poor economic growth prospects. [.N]
A wealth of data is due out this week in both Canada and the United States, including much-watched employment reports for both countries on Friday. (Editing by Jeffrey Hodgson and Peter Galloway)