CANADA FX DEBT-C$ slips as Spanish fears trump China moves

* C$ at C$1.0249 vs US$, or 97.57 U.S. cents
    * Canadian dollar had hit one week-high
    * Bond prices edge up across curve

    By Claire Sibonney	
    TORONTO, May 29 (Reuters) - The Canadian dollar backed off
from a one-week high against its U.S. counterpart on Tuesday as
worries over Spain's escalating borrowing costs and its
weakening banking sector offset hopes that China may soon unveil
more spending measures to support flagging growth.	
    Worries about the cost of shoring up Spain's banks kept
Spanish debt yields elevated while the gap between them and
German 10-year yields remained near euro-era highs, as the risk
grew that Spain may be forced to seek an international bailout.	
    "The main thing on my mind this morning continues to be
Europe ... certainly a lot of news out of Spain, I think that's
continuing to roil the markets a little bit," said Steve Butler,
director of foreign exchange trading at Scotiabank.	
    "I still think that overall, we'll see more U.S. dollar
strength as the market continues to worry."	
    At 8:05 a.m. (1205 GMT), the Canadian dollar stood
at C$1.0249 versus the U.S. dollar, or 97.57 U.S. cents, down
from Monday's North American session finish at C$1.0238 versus
the U.S. dollar, or 97.68 U.S. cents.	
    Earlier, the currency was as firm as C$1.0208, or 97.96 U.S.
cents, its strongest level since May 22 as investors reacted
enthusiastically to reports of possible new stimulus from China.	
    Chinese media reported that the government might pump as
much as 2 trillion yuan ($315.28 billion) into the economy this
year, although this would be well below 4 trillion yuan ($635
billion) of stimulus it did in the wake of the 2008-09 global
financial crisis.	
    As well, the official Shanghai Securities News said China's
biggest banks appeared to have accelerated lending toward the
end of this month as Beijing starts to fast track its approval
of infrastructure investments. 	
    "There were rumors about a possible stimulus package in
China and I think ... the market got maybe a little carried
away," said Butler, noting resistance for the Canadian dollar
around C$1.0210. He said investors would be looking toward
C$1.0180 for an ideal place to buy more U.S. dollars and C$1.03
as an area to sell.	
    Later Tuesday, investors will keep a close eye on the data
from the United States, including S&P/Case Shiller Home Price
Index for March at 9 a.m.	
    Later in the week, the all-important U.S. jobs report,
Canadian growth numbers, and an Irish vote on the European
Union's new fiscal treaty will provide further direction.	
    Canadian government bond prices ticked up across the curve,
mimicking U.S. Treasury prices. 	
    Canada's two-year bond added 3 Canadian cents to
yield 1.077 percent, while the benchmark 10-year bond
 gained 27 Canadian cents to yield 1.814 percent.