CANADA FX DEBT-Canadian dollar weakens as QE rally fades

* C$ at C$0.9754 vs US$, or $1.0252
    * Bond prices edge higher across the curve

    By Claire Sibonney
    TORONTO, Sept 17 (Reuters) - The Canadian dollar dropped
against its U.S. counterpart on Monday, easing further from
13-month highs hit in the previous session as investors
continued to book profits and reassess the impact of yet another
round of U.S. monetary stimulus.
    Promised support from the U.S. and euro zone central banks
have propelled the risk-related Canadian currency up nearly 8
percent since its lows in June. The Fed announced last week that
it  plans to pump an extra $40 billion a month into the economy
until jobs data improves, while the European Central Bank
outlined its new bond-buying initiative earlier in the month.
    But the new week started on a cautious tone, with market
players asking what next.
    "There are enough question marks out there, that even the
Canadian dollar will take a pause given our linkages (to the
United States)," said Don Mikolich, executive director, foreign
exchange sales, at CIBC World Markets.
    While action from the Fed was long awaited by investors, it
has also triggered fresh fears about the United States, Canada's
biggest trading partner.
    "Obviously the thought of open-ended QE is a bit shocking
and ... it shows how desperate the Fed is at the moment, so in a
lot of ways it's not really a good thing," said Steve Butler,
director of foreign exchange trading at Scotiabank.
    At 2:43 p.m. (1843 GMT), the Canadian dollar was at
C$0.9754 versus the greenback, or $1.0252, weaker than Friday's
finish at C$0.9712 versus its U.S. counterpart, or $1.0297.
    Global equities and commodity markets also slipped on Monday
as investors turned their focus back to the challenges facing
the economy, including Europe's debt crisis. 
    "The market is probably a little bit overextended," added
Butler. "I think it feels like the market is still looking to
buy Canada but possibly holding out for better levels closer to
C$0.98 now."
    Analysts cited traders' record net long Canadian dollar
position seen in data from the Commodity Futures Trading
Commission released on Friday. It showed currency speculators
again turned negative on the U.S. dollar in the latest week.
    Meanwhile, monthly international securities transactions
were also Canadian-dollar positive. A report on Monday showed
foreigners resumed their net purchases of Canadian securities in
July, taking on C$6.67 billion after having reduced their
holdings by C$7.76 billion in June. 
    Canadian government bond prices inched up across the curve
as safe-haven assets came back into play. The two-year bond
 was up half a Canadian cents to yield 1.197 percent,
while the benchmark 10-year bond added 20 Canadian
cents, yielding 1.948 percent.