* C$ rebounds to C$0.9830 to the U.S. dollar, or $1.0173
* Bonds steady, some risk flows back into market
* Bernanke says Fed prepared to use tools to spur growth
* Canada Q2 GDP in focus next week (Updates to close)
By Ka Yan Ng
TORONTO, Aug 26 (Reuters) - The Canadian dollar ended firmer against the U.S. currency on Friday as investors absorbed a speech by Federal Reserve Chairman Ben Bernanke that that left the door open to further stimulus measures to boost the struggling U.S. economy.
There was a mixed reception across markets as Bernanke offered few details on the U.S. central bank's options and stopped short of signaling specific actions.
"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."
Equity markets also turned higher, after initially dropping steeply, on Bernanke's comments that the Fed has "a range of tools" it could use to boost the economy. He also said it was critical for the U.S. economy's health to reduce joblessness and also expressed long-term optimism. [ID:nW1E7JM00N] [ID:nN1E77P0HL]
Still, 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.
Heightened fears that Hurricane Irene would disrupt markets lightened trading flows by session end. It was somewhat choppy early, with the currency initially skidding 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.
"Decent market volume was evident in major FX pairs this morning but it has since given way to light flows with position squaring seen ahead of a significant weather event that's likely to hit the Northeast and in particular (New York City) this weekend," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
The Canadian dollar CAD=D4 rebounded to finish at C$0.9830 to the U.S. dollar, or $1.0173, up from C$0.9868 to the U.S. dollar, or $1.0134, at Thursday's close. It rose 0.6 percent on the week.
The two-year bond CA2YT=RR was off 1 Canadian cent to yield 1.003 percent, while the 10-year bond CA10YT=RR edged up 6 Canadian cents to yield 2.399 percent.
Next week's key domestic data will be Canadian second-quarter growth. It is largely expected to have stalled after extraordinary strength in the first quarter, in part because of disruptions caused by the Japanese earthquake and tsunami in March. The strong Canadian dollar and weak U.S. markets also hit exports. [ID:nN1E77P0F0]
Only four of 22 economists surveyed by Reuters predicted lower GDP for the quarter, another seven predicted no growth.
The data is largely priced in to the market but an ugly second quarter figure would also lend backing to the market doves who have priced in an interest rate cut rather than a hike. Still, most dealers expected the Bank of Canada will raise rates sometime in 2012. BOCWATCH [CA/POLL]
The mixed reaction in markets after Bernanke's speech reflected ongoing concerns about the global economy, especially after a series of turbulent weeks in the markets.
"You're really just locking down your positions heading into the weekend, waiting for the next shoe to drop. We're still concerned about Europe, concerned about the ongoing health of the recovery in the U.S. economy," said Tulk.
"We're tentatively feeling optimistic, but know that there's a lot of skeletons remaining in a multitude of closets." (Reporting by Ka Yan Ng; editing by Rob Wilson)