* C$ touches high of 97.75 U.S. cents
* Bonds flat to lower; eyes on Carney
By Jennifer Kwan
TORONTO, Sept 30 (Reuters) - Canada's dollar rose against its U.S. counterpart on Thursday after domestic data showed economic contraction was not worse than market expectations, while U.S. data showed growth was a touch higher.
The Canadian dollar CAD=D4 rose as high as C$1.0230 to the U.S. dollar, or 97.75 U.S. cents following the GDP reports.
Canada's economy contracted for the first time in a year in July on weakness in manufacturing, construction and retail, adding to reasons the Bank of Canada could pause its interest rate hike campaign. [ID:nN30434455]
The currency likely got a lift because many market players expected the number to come in lower than consensus estimates, particularly after Canada's Finance Minister on Wednesday warned on the potential for a negative reading [ID:nN2996628], said Camilla Sutton, chief currency strategist at Scotia Capital.
Also supportive was U.S. data that showed economic growth was a touch higher in the second quarter than previously estimated due to upward revisions to consumer spending and business inventories. [ID:nN29279871]
"We had a stronger GDP Q2 revision in the U.S., which is good for Canada in the sense that if the outlook for the U.S. is firming somewhat that takes away one of the biggest fears for the Canadian outlook," said Sutton.
At 9:15 a.m. (1315 GMT), the currency was at C$1.0252 to the U.S. dollar, or 97.54 U.S. cents, up from Wednesday's finish at C$1.0340 to the U.S. dollar, or 96.71 U.S. cents.
The currency moved higher as the greenback slumped, while oil, gold and equity prices climbed. [FRX/] [GOL/] [.N] [MKTS/GLOB]
As well, the potential for "month-end flows" will likely also keep the currency higher as money managers rebalance their portfolios, said Sutton.
Canadian government bond prices were mostly lower, following U.S. Treasuries, which pared gains after U.S. data. [US/]
The next key event on Thursday for Canada will be commentary from Bank of Canada Governor Mark Carney, who will give a speech entitled "Employment in a Modest Recovery."
The two-year bond CA2YT=RR slumped 5 Canadian cents to yield 1.409 percent, while the 10-year bond CA10YT=RR sank 12 Canadian cents to yield 2.752 percent. (Reporting by Jennifer Kwan; editing by Jeffrey Hodgson)