* C$ edges up to C$0.9845 per US$, or $1.0157
* Bonds flat to higher
* Bernanke says Fed prepared to use tools to spur growth (Updates to midafternoon)
By Ka Yan Ng
TORONTO, Aug 26 (Reuters) - The Canadian dollar turned higher against the U.S. currency on Friday afternoon as investors digested a speech by U.S. Federal Reserve Chairman Ben Bernanke that had few details on the central bank's options to provide further stimulus for the struggling U.S. economy.
Equity markets also turned higher, after initially dropping steeply, after Bernanke said the U.S. central bank has "a range of tools" it could use to boost the U.S. economy. He said it was critical for the U.S. economy's health to reduce long-term joblessness and he also expressed long-term optimism. [ID:nW1E7JM00N] [ID:nN1E77P0HL]
The Canadian dollar initially weakened to a one-week low against the greenback at C$0.9923 to the U.S. dollar, or $1.0078, shortly after Bernanke's comments.
But by 2:38 p.m. (1838 GMT), the currency CAD=D4 had rebounded to C$0.9845 to the U.S. dollar, or $1.0157, up from C$0.9868 to the U.S. dollar, or $1.0134, at Thursday's close.
"The chance of Bernanke coming through with an actual policy recommendation was quite small," said David Tulk, chief Canada macro strategist at TD Securities.
"Initially, as expected, markets reacted negatively, only to realize that no harm had been done either, so they resumed their ascent."
But the turn in sentiment was not full-fledged as safe-haven assets still found some favor. The price of gold rose and government bonds, including Canada's, were flat to higher.
The two-year bond CA2YT=RR was flat, yielding 1.000 percent, while the 10-year bond CA10YT=RR edged up 10 Canadian cents to yield 2.394 percent. (Reporting by Ka Yan Ng; editing by Rob Wilson)