CANADA FX DEBT-C$ strengthens as some European fears ease

* Firms to C$0.9821 vs US$ or $1.0182
    * Canadian producer data, revisions have little impact

    By Alastair Sharp
    TORONTO, Oct 1 (Reuters) - The Canadian dollar strengthened
slightly against its U.S. counterpart on Monday, tracking
equity-market gains after a report showed problems in Spain's
banking sector were no worse than markets had feared.
    The report, and hopes for aggressive action by big central
banks to stimulate economic growth, more than offset evidence
that the euro zone's economy was heading for a second recession
in three years. 
    "If the risk environment holds up as we go through the
afternoon here in Europe, then it should be the case that
dollar/CAD tests lower and grinds down to the $0.98 threshold,"
said Jeremy Stretch, head of foreign exchange strategy at CIBC
World Markets in London. 
    "Anything below $0.9780 looks considerably out of reach." 
    At 9:28 a.m. (1328 GMT), the Canadian dollar stood 
at C$0.9821 against the U.S. dollar, or $1.0182, after closing
out last week at $0.9832, or $1.0171.
    The currency brushed off data showing Canadian producer
prices slipped in August.  
    Another report showed the pace of growth in Canadian
manufacturing fell for a third straight month in September,
hitting a six-month low, another sign that economic momentum is
slowing in Canada as it is worldwide. 
    Stretch said the currency would likely not see too much more
strength at least until Friday, when both Canada and the United
States issue employment data.
    "It's going to be pretty tough to make too much traction
below there unless we get further improvements from the global
side," he said.
    Canadian government bond prices were mixed, with the 10-year
bond rising 7 Canadian cents to yield 1.72 percent,
while the 30-year issue fell 7 Canadian cents to
yield 2.323.