* C$ slips to 93.85 U.S. cents
* Bonds rise in safe haven bid
* European debt fears return, adds to recovery uncertainty
By Ka Yan Ng
TORONTO, Aug 25 (Reuters) - Canada's dollar held near a seven-week low against the greenback on Wednesday morning as European debt fears were added to malaise about the world economic recovery, raising risk aversion.
A one-notch downgrade to 'AA-' of Ireland's long-term rating by credit agency Standard & Poor's reignited concern about Europe, following a wave of weak economic data to have hit the market recently. It sent riskier assets lower and underscored support to bond prices. [ID:nN2481011] [ID:nLDE67O0YY]
Although data showed the German Ifo business climate index climbed in August and exceeded expectations, the impact was limited amid a greater worry of a double dip recession. [ID:nLDE67O0JL]
"Concerns quickly returned, not only about peripheral Europe but also about the global recovery going forward and we're trading at lower levels. Clearly fear is continuing to dominate," said Matthew Strauss, senior currency strategist at RBC Capital Markets.
"The market is caught up in a negative psychology at the moment where they are quick to pounce on a negative number, since it confirms the fear, whereas a positive number is viewed with skepticism," said Strauss.
The Canadian dollar crept as low as C$1.0669 to the U.S. dollar, or 93.73 U.S. cents, after data showing U.S. durable goods orders rose far less than expected in July. It was slightly weaker than the seven-week low hit on Tuesday at C$1.0665 to the U.S. dollar, or 93.76 U.S. cents. [ID:nN25268843]
By 8:35 a.m. (1435 GMT), the Canadian currency CAD=D4 had recovered to C$1.0655 to the U.S. dollar, or 93.85 U.S. cents, but was still down from Tuesday's close at C$1.0603 to the U.S. dollar, or 94.31 U.S. cents.
Strauss said a daily close above C$1.0679 would confirm a trend change in the currency, which has closed lower for four straight sessions.
Investors will look to U.S. data, including July new home sales, for clues about the state of the economy. The data follows Tuesday's weaker-than-expected read on U.S. existing home sales for July.
Canada's government bond prices were firmer across the curve, with safer assets were sought as North American equity markets pointed to a lower open, tracking overseas markets.
Bond prices have also rallied, while the currency has taken a hit, on declining expectations of a third straight rate hike by the Bank of Canada next month. The central bank has raised rates twice since the start of June, but disappointing data has hit yields on overnight index swaps for the Sept. 8 decision.
Those yields, which trade based on market expectations for the central bank's key policy rate, held around a 30 percent chance of a rate hike, as calculated by Reuters. BOCWATCH
Canada's two-year bond CA2YT=RR advanced 5 Canadian cents to yield 1.174 percent, while the 10-year bond CA10YT=RR rose 38 Canadian cents to yield 2.781 percent.
(Reporting by Ka Yan Ng; Editing by Chizu Nomiyama)