CANADA FX DEBT-C$ hits par in slow trade, cuts gains

 * C$ pares gains to 99.98 U.S. cents

 * Bond prices slide

 * Canada markets reopen to light trade after break

 TORONTO, Dec 29 (Reuters) - The Canadian dollar rose above
parity with the U.S. dollar briefly on Wednesday in illiquid
trade.

 The Canadian dollar hit a high of 99.75 Canadian cents to
the U.S. dollar, matching the level it hit on Tuesday when
Canadian markets were shut for an extended holiday break.

 On Tuesday, the currency traded in a wide range of C$1.0072
to the U.S. dollar, or 99.29 U.S. cents, to 99.75 Canadian
cents to the greenback, or $1.0025 -- rising to its strongest
since late April.

 At 8:55 a.m. (1355 GMT), the Canadian dollar had pared
gains, sitting at C$1.0002 to the U.S. dollar, or 99.98 U.S.
cents, up from Friday's close at C$1.0064 to the U.S. dollar,
or 99.36 U.S. cents. Canadian markets were shut on Monday and
Tuesday.

 "I think it's just a flow that probably would have gone
through over the past couple of days that is now all going
through the market, and you back that up with some illiquidity
and we're getting a fairly substantial bounce," said David
Watt, senior currency strategist at RBC Capital Markets.

 The Canadian dollar has reached a one-for-one footing with
the U.S. currency a handful of times this year but without any
conviction.

 Monthly foreign exchange surveys by Reuters have
consistently found forecasters expect the Canadian dollar to
hover near par with the greenback next year, partly as a result
of sturdy commodity prices. [CAD/POLL]

 Expected interest rate increases from the Bank of Canada
next year will also support party because a widening interest
rate spread over U.S. interest rates is more attractive to
investors.

 Canadian bond prices slumped in light trade, playing
catch-up to losses suffered by U.S. Treasuries earlier in the
week.

 Prices were additionally weighed by firmer risk sentiment
as North American stock markets looked set to carry on a
rally.

 The two-year bond CA2YT=RR sank 13 Canadian cents to
yield 1.761 percent, while the 10-year bond CA10YT=RR lost 61
Canadian cents to yield 3.245 percent.

 (Reporting by Ka Yan Ng; Editing by Padraic Cassidy)