CANADA FX DEBT-C$ rally slows after ECB holds rates

* C$ at C$1.0368 vs US$, or 96.45 U.S. cents
    * ECB holds rates at 1 percent
    * Bond prices lower across curve

    By Jon Cook	
    TORONTO, June 6 (Reuters) - The Canadian dollar advanced
against its U.S. counterpart on Wednesday as increased
expectations that major central banks may embark on a wave of
policy easing sparked a commodity rally, but momentum slowed
after the European Central Bank left its key interest rate
    The ECB resisted pressure to provide more support for the
euro zone's ailing economy at its regular monthly policy meeting
by holding its main interest rate steady at 1 percent. Market
gains were further muted after ECB President Mario Draghi said
there were increasing risks to economic recovery in the euro
    Recent disappointing economic data from the United States
and China, as well as signs the euro area slowdown is affecting
core countries such as Germany, have built up pressure on the
world's central banks to make some response. 	
    Commodities had rallied on the hopes the ECB would trim
rates, with U.S. crude oil up more than $1 to $85.45. Gold rose
more than 1 percent to $1,633.18 an ounce, its highest level in
a month.  	
    Canada's dollar strengthened overnight to a six-day high at
C$1.0311 versus the U.S. currency, or 96.98 U.S. cents. 	
    "It seems to just be on hopes of some form of quantitative
easing from one of the major central banks," said Greg Moore,
foreign exchange strategist at TD Securities.	
    At 8:51 a.m. (1251 GMT), the Canadian dollar was at
C$1.0368 against the greenback, or 96.45 U.S. cents, up slightly
from Tuesday's close at C$1.0380 against the U.S. dollar, or
96.34 U.S. cents.	
    Hopes of a resolution to Spain's banking crisis helped
alleviate the ECB announcement. On Wednesday German officials
said a deal is in the works that would allow Spain to
recapitalise its stricken banks with aid from its European
partners but avoid the embarrassment of having to adopt new
economic reforms imposed from the outside. 	
    On Tuesday the Bank of Canada held its key interest rate at
1 percent. However, the statement was still more hawkish than
many market players had expected, as the central bank did not
remove the possibility of a rate increase further down the road
should the Canadian economy maintain its momentum.
    "It's somewhat surprising that the reaction from just a
general lift in risk assets moved the Canadian dollar about
twice as much as the Bank of Canada did yesterday," said Moore.	
    Moore added the currency, in the near term, was likely to
hover between C$1.0260 and C$1.0450.	
    After the ECB, focus shifts to U.S. Federal Reserve Chairman
Ben Bernanke's testimony to the U.S. Congress on Thursday for
signals of further stimulus measures.	
    Canadian bond markets were lower across the curve. Canada's
two-year bond fell 1.5 Canadian cents to yield 0.998
percent, while the benchmark 10-year bond dropped 13
cents to yield 1.755 percent.