* C$ firms to 94.80 U.S. cents
* Bernanke comments help revive demand for riskier assets
* Bond prices tumble, Canada outperforms at long end (Updates following Bernanke testimony)
By Jeffrey Hodgson
TORONTO, Aug 27 (Reuters) - Canada's dollar pared early losses to move higher against the U.S. currency on Friday, as comments by Federal Reserve Chairman Ben Bernanke spurred demand for assets that do best when the global economy is growing.
Bernanke warned on Friday the economic recovery has softened more than expected. But he also said the Fed is ready to take further steps if needed to spur the stumbling U.S. economy. [ID:nN27259859]
"The market is interpreting that the Fed stands ready to probably go more in the way of quantitative easing," said Charles St-Arnaud, Canadian economist and currency strategist at Nomura International in New York.
"There's the negative impact on the U.S. dollar that, in theory, an increase in money supply should be negative for a currency. But it's also that it could be a boost on confidence (in growth) and on risky assets."
Quantitative easing effectively means printing more money to buy assets such as longer-term government debt in a bid to drive down borrowing costs.
At 11:58 a.m. (1558 GMT), the Canadian dollar CAD=D4 was at C$1.0548 to the U.S. dollar, or 94.80 U.S. cents, compared with C$1.0567 to the U.S. dollar, or 94.63 U.S. cents, at Thursday's close.
The currency initially weakened to a session low of C$1.0650, or 93.90 U.S. cents, after Bernanke's comments were first published.
The Canadian dollar had been weaker overnight. One currency strategist said news that Australian toll-road operator Intoll Group ITO.AX has recommended a A$3.4 billion takeover bid from Canada Pension Plan Investment Board may have weighed on the Canadian dollar. Such a deal would typically involve the sale of a large amount of Canadian dollars.
BOND PRICES SLUMP
Canadian bond prices tumbled after Bernanke's testimony, mirroring losses in U.S. Treasuries. Bonds slid as Canadian stocks jumped more than 1 percent, reducing demand for safe-haven assets like government debt. [.TO]
The two-year bond CA2YT=RR fell 11 Canadian cents to yield 1.295 percent, while the 10-year bond CA10YT=RR fell 52 Canadian cents to yield 2.852 percent.
But Canadian bonds mostly outperformed U.S. Treasuries, with the Canadian 10-year yield 22.5 basis points above its U.S. counterpart, down from about 31 basis points on Thursday. (With additional reporting by Ka Yan Ng and Claire Sibonney; editing by Rob Wilson)