* C$ at C$1.0393 vs US$, or 96.22 U.S. cents * Change in Bank of Canada language undermines loonie * Worries of tighter money in China had set negative tone * Canadian bond prices higher, outperform Treasuries By Leah Schnurr TORONTO, Oct 23 The Canadian dollar fell nearly a cent to a one-week low against the U.S. dollar on Wednesday after a shift in policy gears by the Bank of Canada pushed the prospect of higher interest rates further down the line. Highlighting weaker-than-expected growth and inflation, the Bank of Canada dropped any mention of eventual rate increases from its latest policy statement after more than a year of warning that rates will one day have to rise. The surprise removal of the central bank's so-called tightening bias yanked the loonie to a session low of C$1.0394. The bank has held interest rates at 1 percent since 2010. "The drop of the tightening bias is going to be read as an unexpected shift in terms of the policy stance. It implies less likelihood of rates moving up," said Paul Ferley, assistant chief economist at Royal Bank Of Canada. "A move wasn't viewed as imminent, but that policy statement pushes out any expectation of any rate hikes further into the future, and that weighs on the Canadian dollar." The Canadian dollar was at C$1.0393 versus the greenback, or 96.22 U.S. cents, weaker than Tuesday's close of C$1.0289, or 97.19 U.S. cents. A Reuters poll published last week showed forecasters expected the Bank of Canada's next interest rate move would be a hike in the fourth quarter of 2014. But overnight index swaps, which trade based on expectations for the central bank's policy rate, showed that after the bank's latest statement, traders slashed bets that rates will rise late next year and priced in a small chance of a cut before then. Canadian government bond prices, already stronger overnight, climbed further on the news and outperformed U.S. Treasuries. The two-year bond was up 13.5 Canadian cents to yield 1.100 percent and the benchmark 10-year bond gained 50 Canadian cents to yield 2.421 percent. The loonie had already taken on a negative tone earlier in the session on worries over tighter monetary conditions in China. China's primary short-term money rates rose after a policy adviser to the People's Bank of China said on Tuesday that the central bank may tighten cash conditions in the financial system to address inflation risks. Investors are worried tightening could hamper growth in China, the world's second-largest economy and a major consumer of commodities.