CANADA FX DEBT-C$ strengthens to one-week high against broadly weaker greenback

* Canadian dollar at C$1.3109, or 76.28 U.S. cents
    * C$ touches its strongest since July 22 at C$1.3075
    * Bond prices higher across the maturity curve

    By Fergal Smith
    TORONTO, July 29 (Reuters) - The Canadian dollar
strengthened to a one-week high against its broadly weaker U.S.
counterpart on Friday as data showing the U.S. economy grew far
less than expected in the second quarter offset weak domestic
data and a three-month low for oil prices.
    U.S. crude prices were down 0.49 percent to $40.94 a
barrel after having fallen below $41 for the first time since
    Canada's economy suffered its biggest one-month contraction
in May since March 2009 as wildfires in northern Alberta caused
a sharp drop in oil extraction, reinforcing expectations that
the economy shrank in the second quarter. 
    "The issue now is production should come back in June," said
Paul Ferley, assistant chief economist at Royal Bank of Canada.
"It should contribute to GDP bouncing strongly in the third
quarter after decline in the second." 
    The U.S. dollar fell against a basket of major
currencies after a round of modest monetary policy easing from
the Bank of Japan disappointed investors. This was followed by
the weaker-than-expected U.S. gross domestic product data.
    At 9:34 a.m. EDT (1334 GMT), the Canadian dollar 
was trading at C$1.3109 to the greenback, or 76.28 U.S. cents,
stronger than Thursday's close of C$1.3161, or 75.98 U.S. cents.
    The currency's weakest level of the session was C$1.3185,
while it touched its strongest since July 22 at C$1.3075.
    Still, the Canadian dollar lost ground against some other
major currencies. Against the euro it touched C$1.4665, its
weakest since June 6.
    The implied probability of a Bank of Canada rate cut this
year rose slightly to 32 percent, overnight index swaps data
showed. It was 28 percent before the U.S. and Canadian data.
    Canadian government bond prices were higher across the
maturity curve in sympathy with U.S. Treasuries.
    The two-year bond rose 5 Canadian cents to yield
0.561 percent and the benchmark 10-year climbed 7
Canadian cents to yield 1.062 percent.
    The Canada-U.S. 10-year spread moved 1.7 basis points to
-42.5 basis points, its smallest gap since July 8, as U.S.
Treasuries outperformed.

 (Reporting by Fergal Smith; Editing by Jeffrey Hodgson)