CANADA FX DEBT-C$ higher, briefly pares gains on U.S. data

* C$ edges up to C$0.9869 to the U.S. dollar, or $1.0133

* Bond prices mostly lower

* U.S. manufacturing data dents sentiment

TORONTO, Aug 15 (Reuters) - Canada’s dollar pared gains against the U.S. currency on Monday after soft U.S. manufacturing data reinforced a negative tone on global growth from the prior week.

Risk sentiment had been tilted to the positive side overnight as world stocks climbed further out of their August hole, lifted by signs of earlier-than-expected recovery in Japan and a growing belief that shares may now be cheap. [MKTS/GLOB]

But a gauge of manufacturing in New York State dented sentiment. It showed the sector unexpectedly contracted for the third month in a row in August with the general business conditions index sagging to minus 7.72 from minus 3.76 the month before. Economists polled by Reuters had expected a reading of zero. [ID:nN9E7ID022] [ID:nN1E77E04P]

“If you get a number out like that, it’s a little bit of a setback for the North American bloc,” said John Curran, senior vice president at CanadianForex.

As the North American session got underway, the Canadian dollar rallied as high as C$0.9856 to the U.S. dollar ahead of the U.S. data. It slipped about 30 ticks following the data before rebounding a bit.

A soft U.S. economy could hurt the Canadian economy since the two countries share a massive trading link. This week's North American slate of data features several pieces for housing and inflation figures. ECON

“I can’t help but think it’s just going to confirm that the North American economy is in a general slowdown. That should weigh on the Canadian dollar,” said Curran.

Still, the Canadian dollar has held in “relatively well” compared with other major currencies, he said. But he did not discount the possibility the Canadian dollar could take another run at weakening to par with the U.S. dollar in the short-term.

At 9:05 a.m. (1305 GMT), the Canadian currency CAD=D4 was at C$0.9869 to the U.S. dollar, or $1.0133, up from C$0.9907 to the U.S. dollar, or $1.0094, at Friday's North American close.

Bond prices were mostly lower, except for the 10-year bond, as U.S. and Canadian stock index futures still indicated a firm open despite the U.S. data.

Canada's two-year bond CA2YT=RR was off 5 Canadian cents to yield 0.957 percent, while the 10-year bond CA10YT=RR was up 5 Canadian cents to yield 2.463 percent. (Reporting by Ka Yan Ng, Editing by Chizu Nomiyama)