* BoC's Monetary Policy Report in focus
* C$ hits overnight high of C$1.0966
* Bond prices extend Wednesday's slide
By Frank Pingue
TORONTO, July 23 (Reuters) - The Canadian dollar was mostly flat versus the U.S. currency on Thursday ahead of the Bank of Canada's Monetary Policy Report that is expected to elaborate on the rosier outlook it issued earlier this week.
On Tuesday, the Bank of Canada left its key interest rate at 0.25 percent and backed off the hard tone it took toward a surge in the domestic currency last month, which helped send the Canadian dollar to its highest level since June 11. [ID:nN21196742]
"There was definite perception that the bank toned down its concern on the currency and became more tolerant to currency strength, so we generally expect that to be confirmed in the MPR," said Adam Cole, global head of FX strategy at RBC Capital Markets in London.
"The other thing the bank will do is put flesh on upward revisions for the growth forecasts ... so again it suggests a relatively positive tone."
At 7:45 a.m. (1145 GMT) the Canadian unit was at C$1.0981 to the U.S. dollar, or 91.07 U.S. cents, up from C$1.0985 to the U.S. dollar, or 91.03 U.S. cents, at Wednesday's close.
During the overnight session the Canadian dollar built on momentum from Wednesday's North American session and rose to C$1.0966 to the U.S. dollar, or 91.19 U.S. cents, before backing off those levels.
The Bank of Canada will release the Monetary Policy Report at 10:30 a.m. and traders will be looking to see if it offers further details on its economic outlook.
On Tuesday, the bank forecast the Canadian economy will shrink by 2.3 percent in 2009, not the 3.0 percent it forecast in April; and will grow by 3.0 percent in 2010 rather than the 2.5 percent it forecast earlier.
BOND PRICES LOWER
Canadian bond prices tracked the move in the bigger U.S. Treasury market and were pinned lower across the curve ahead of U.S. weekly jobless claims and existing home sales figures due later in the session.
The drop in bond prices followed a slide during Wednesday's session when dealers booked profits a day after U.S. Federal Reserve Chairman Ben Bernanke ignited a rally when he indicated the U.S. the economy was too weak to tighten monetary policy. [ID:nSP455272]
The two-year Canada bond was down 2 Canadian cents at C$100.07 to yield 1.211 percent, while the 10-year bond slipped 10 Canadian cents to C$102.40 to yield 3.460 percent.
The 30-year bond shed 5 Canadian cents to C$116.35 to yield 4.018 percent. The 30-year U.S. Treasury bond yielded 4.444 percent. (Editing by Padraic Cassidy)