CANADA FX DEBT-C$ falls for 2nd day, bonds up after Fed outlook

* C$ falls to 96.29 U.S. cents

* Bonds prices rise across curve

* Fed Beige Book indicates U.S. economy not robust (Updates to close, adds comments)

By Claire Sibonney

TORONTO, July 28 (Reuters) - The Canadian currency fell for a second straight session against the U.S. dollar on Wednesday, dragged lower by U.S. data that signaled persistent headwinds for the global recovery.

The Federal Reserve's latest Beige Book reported overall economic activity is still increasing but not robustly and in a few areas has lost steam. [ID:nWALSIE6ES] It pointed to sluggish housing markets and weakening sales of costly items like new cars in the United States, by far Canada's biggest trading partner.

The Canadian dollar fell as low as C$1.0390 to the U.S. dollar, or 96.25 U.S. cents, nearly matching its overnight low, following the U.S. summary of national economic conditions.

"The Beige Book is not flagging a double-dip recession but it's also not painting a very flattering picture of the economy," said Sal Guatieri, senior economist at BMO Capital Markets.

"Unfortunately, we're not seeing any bounce in home sales even three months after the tax credit expired; we're not seeing much improvement in labor markets," Guatieri said.

The currency CAD=D4 finished not far off its low of the day at C$1.0385 to the U.S. dollar, or 96.29 U.S. cents, down from Tuesday's finish at C$1.0362 to the U.S. dollar, or 96.51 U.S. cents.

Before the Fed's report was released, the Canadian dollar had already given back gains from an earlier rally, in line with declining equity markets, as conflicting U.S. reports showed improved corporate earnings and falling orders for durable goods.

As well, oil slipped below $77 a barrel after economic and industry data fueled doubts over the pace of recovery in energy demand, which also weighed on the commodity-linked currency. [O/R] [MET/L]

BONDS EXTEND GAINS

Canadian bond prices followed U.S. Treasury issues higher, which were supported after a $37 billion auction of five-year notes met with healthy demand and after the Beige Book. [US/]

The Beige Book report also fit in with data that showed new orders for U.S. manufactured goods like cars and planes fell unexpectedly for a second straight month in June, posting the largest drop since August. [ID:nN28189480]

"There's been a real lack of Canadian data this week so we're trading off the U.S.," said Kam Bath, fixed income strategist at RBC Capital Markets.

"The durable goods report was soft, even though it's a very volatile number; it weighed on sentiment."

While Statistics Canada presents its GDP figures for May at the end of the week, the data is likely to be overshadowed by U.S. second-quarter GDP numbers, due at the same time.

The Canadian two-year bond CA2YT=RR was up 8 Canadian cents to yield 1.601 percent, while the 10-year bond CA10YT=RR gained 37 Canadian cents to yield 3.228 percent.

Canadian bonds outperformed U.S. Treasury issues in the short- and long-end of the curve, but underperformed in the belly. The Canadian 10-year bond was 23 basis points above the comparable U.S. bond, compared with 22.3 basis points in the previous session. (Additional reporting by Ka Yan Ng in Ottawa; editing by Rob Wilson)