CANADA FX DEBT-C$ hits 4-year low as central bank concerns weigh

* Canadian dollar at C$1.0972 or 91.14 U.S. cents
    * Bond prices mostly lower across the maturity curve

    By Leah Schnurr
    TORONTO, Jan 21 (Reuters) - The Canadian dollar fell to a
four-year low against the greenback on Tuesday, breaking through
the psychologically important C$1.10 level as investors
speculated over the path of monetary policy on both sides of the
    Still, the loonie backed off the lows for the session after
data showed Canadian manufacturing sales rose more than expected
in November to their highest in almost two years. 
    The U.S. dollar rose as there was some expectation the
Federal Reserve could further reduce the pace of its economic
stimulus program. The Wall Street Journal said that the Fed may
trim its bond purchases to $65 billion a month from the current
$75 billion when the central bank meets at the end of January.
    A swifter pace for unwinding the Fed's quantitative easing
program is seen as a negative for the Canadian dollar as it will
likely boost investor appetite for the U.S. currency.
    At the same time, concerns that the Bank of Canada could
sound more dovish at its policy-setting meeting on Wednesday
drove the loonie lower. 
    The Bank of Canada shifted gears in October last year,
dropping any talk of rate hikes after 18 months of signaling
that tightening was on the horizon. The change has weighed
heavily on the Canadian dollar and the U.S. dollar has
appreciated more than 3 percent against the loonie just three
weeks into 2014.
    "The sentiment does continue to be quite firmly against
Canada," said Don Mikolich, executive director of foreign
exchange sales at CIBC World Markets in Toronto.
    After some disappointing economic data earlier this month,
including a surprise increase in the unemployment rate, markets
are positioning for the Bank of Canada to take a more dovish
tone following Wednesday's meeting.
    "They've been dovish on a good day," said Mikolich. "They've
been comfortable to see the currency weaken off to a certain
level. It's hard to say what levels they have in mind,
ultimately, but I don't think we're there yet."
    The Canadian dollar was at C$1.0972 to the
greenback, or 91.14 U.S. cents, weaker than Monday's close of
C$1.0951, or 91.32 U.S. cents. The Canadian currency fell as far
as C$1.1019, its lowest level since September 2009.
    That session low will likely be a floor for the loonie
heading into the Bank of Canada announcement, said Mikolich. 
    The Canadian dollar trimmed declines after factory sales
jumped 1 percent in November, though a separate report showed
wholesale trade was disappointingly flat in November.
    Canadian government bond prices were mostly lower across the
maturity curve, with the two-year off 1 Canadian cent
to yield 1.022 percent and the benchmark 10-year 
down 3 Canadian cents to yield 2.496 percent.