* Fed comments knock C$ from near six-week high
* C$ unravels gains made after BoC rate decision
* Bond prices mostly higher after early selloff (Recasts)
By Frank Pingue
TORONTO, July 21 (Reuters) - Canada's dollar fell from its highest level in about six weeks and turned lower versus the greenback on Tuesday as a cautious assessment on the U.S. economy forced it to retreat from gains made after a more optimistic statement from the Bank of Canada.
The Canadian currency's abrupt turnaround came as U.S. Federal Reserve Chairman Ben Bernanke gave a cautious assessment of the U.S. economy during testimony before the House Financial Services Committee. [ID:nWEQ001226]
The comments offered a boost to the U.S. dollar due to its safe-haven appeal and forced the Canadian dollar to relinquish the gains it made after the Bank of Canada softened the hard tone it had taken toward a surge in the currency last month.
"I would clearly give the credit to Mr. Bernanke," Steve Butler, director of foreign exchange trading at Scotia Capital said when asked to explain the slide in the Canadian dollar.
"Just the whole idea that (U.S.) rates will stay low for a long period of time I guess diffuses some of the hope that things were coming along faster than we were expecting."
At 2:10 p.m. (1810 GMT), the Canadian unit was at C$1.1083 to the U.S. dollar, or 90.23 U.S. cents, down from C$1.1068 to the U.S. dollar, or 90.35 U.S. cents, at Monday's close.
Earlier in the session the Canadian currency shot as high as C$1.0965 to the U.S. dollar, or 91.19 U.S. cents, its highest level since June 11.
The early rally came after the Bank of Canada did as was expected and kept its conditional pledge to keep its key interest rate at 0.25 percent. [ID:N21196742]
The central bank said in its statement that a stronger currency and industrial restructuring were "significantly moderating the pace of overall growth". The tone was softer than in June, when the bank said the "unprecedentedly rapid rise" in the currency could "fully offset" positive factors.
The bank's statement also included a rosier economic outlook, including a forecast that the economy will shrink by 2.3 percent in 2009, not the 3.0 percent the bank forecast in April; and will grow by 3.0 percent in 2010 rather than the 2.5 percent it had forecast earlier.
"I think the market was expecting some more forceful language with respect to the currency, which was not received," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
"So it opened the door just a bit more in terms of the acquiescence from the bank with respect to Canadian dollar appreciation, and the immediate price action tells the story."
The Canadian dollar is up about 18 percent since it tumbled to a four-year low of C$1.3066 to the U.S. dollar, or 76.53 U.S. cents, in early March.
BOND PRICES MOSTLY HIGHER
Canadian bond prices reversed early losses to turn higher across the short end of the curve as Bernanke's comments gave a bid to secure government debt.
The bounce in Canadian bonds came alongside a rally in the bigger U.S. Treasury market after Bernanke cautioned about economic weakness.
The two-year Canada bond was up 6 Canadian cents at C$100.11 to yield 1.189 percent, while the 10-year bond rose 25 Canadian cents to C$102.85 to yield 3.407 percent.
The 30-year bond moved off its earlier low but was still down 15 Canadian cents at C$117.20 to yield 3.973 percent. The 30-year U.S. Treasury bond yielded 4.398 percent. (Editing by Peter Galloway)