* Closes at C$1.0978 per US$, or 91.09 U.S. cents
* C$ hits lowest level since Aug. 19
* Weak commodity prices blamed for drop
* Bond prices remain flat ahead of data (Updates to session close)
By Frank Pingue
TORONTO, Aug 26 (Reuters) - The Canadian dollar closed lower against the greenback for the second straight session on Wednesday as a drop in commodity prices forced the currency to relinquish more of its recent gains.
Commodity prices, which often influence the currency given the nature of Canada's exports, were knocked lower after China said it would act to restrict redundant investments across a number of sectors. [ID:nPEK160728]
The move lower was accentuated by a stronger U.S. currency, which was boosted by data that offered investors fresh evidence a modest economic recovery was taking place. [ID:nN26259327]
The Canadian dollar hit a session low of C$1.1001 to the U.S. dollar, or 99.90 U.S. cents, its lowest level since Aug. 19, before recovering slightly by the close.
"Broad-based U.S. dollar strength ... and the selloff that we saw in commodity markets due to the comments from China regarding the possibility of curbing industrial overcapacity," were two reasons for the currency's retreat, said Matthew Strauss, senior currency strategist RBC Capital Markets.
"The correction itself is not a surprise, the magnitude is a bit of a surprise. And the fact that we underperformed other commodity peers ... also highlights increased volatility in the Canadian dollar," Strauss added.
The currency went on to finish at C$1.0978 to the U.S. dollar, or 91.09 U.S. cents, according to the Bank of Canada's official close, down from C$1.0858 to the U.S. dollar, or 92.09 U.S. cents, at Tuesday's close.
That's well off the C$1.0718 to the U.S. dollar, or 93.30 U.S. cents, that it reached early on Tuesday, a gain that unraveled after a Bank of Canada official warned that the currency's strength could hurt the nation's economic recovery. [ID:nN25220089]
BONDS END FLAT
Canadian bond prices, with no domestic data to influence a move, followed the bigger U.S. Treasury market to a relatively flat close across the curve.
U.S. bonds ended flat as decent demand at an auction of five-year notes helped to ease some of the worries over the country's burgeoning debt.
But moves in bond prices were kept to a minimum ahead of key domestic economic data due out Friday, when Canada's current account deficit is expected to reach C$11.10 billion for the second quarter.
Other domestic data due on Friday is expected to show producer prices fell 0.5 percent in July, while raw materials prices for the same month are expected to fall 3.0 percent.
The two-year bond CA2YT=RR ended down 1 Canadian cent at C$99.42 to yield 1.296 percent, while the 10-year bond CA10YT=RR rose 5 Canadian cents at C$102.90 to yield 3.398 percent.
The 30-year bond CA30YT=RR ended flat at C$118.50 to yield 3.902 percent.
Canadian bonds were mixed versus their U.S. counterparts across the curve. The Canadian 30-year bond was 29.9 basis points below the U.S. 30-year yield, versus 32.1 basis points on Tuesday. (Editing by Rob Wilson)