CANADA FX DEBT-C$ firms vs US$ after Bernanke defends stimulus

* C$ at C$1.0264 vs US$, or 97.43 U.S. cents
    * Hits 8-month low of C$1.0304 during session
    * US$ rallies on strong home sales, consumer confidence
    * Bernanke defends Fed monetary policy
    * Italian election uncertainty worries markets

    By Solarina Ho
    TORONTO, Feb 26 (Reuters) - The Canadian dollar closed
stronger on Tuesday following congressional testimony by U.S.
Federal Reserve Chairman Ben Bernanke after it touched its
weakest level against the U.S. dollar in eight months earlier in
the day.
    The U.S. dollar rallied after data showed new U.S.
single-family home sales surged to their highest level in 4-1/2
years in January and consumer confidence picked up more than
expected in February.  
    The greenback pared gains, however, after Bernanke strongly
defended the Fed's monetary stimulus and urged lawmakers to
avoid sharp spending cuts set to go into effect on Friday, while
showing no sign that tighter monetary policy is in the cards.
    "Certainly the U.S. data this morning ... helped push the
U.S. dollar higher. And then Bernanke came out," said Gareth
Sylvester, director at Klarity FX in San Francisco.
    "He sent no real signal to the marketplace that they're
poised to start raising rates or removing some of the
quantitative easing. There's really no change."
    The Canadian dollar closed at C$1.0264 vs the U.S. dollar,
or 97.43 U.S. cents, after trading as low as C$1.0304, or 97.05
U.S. cents, its weakest level since June 29, 2012. This compared
with Monday's North American session close of C$1.0276, or 97.31
U.S. cents.
    The Canadian dollar outperformed most currencies, including
its commodities-linked counterparts, the Australian and New
Zealand dollars. 
    The Canadian dollar has been under pressure in recent weeks
following dismal domestic economic data. Traders are now looking
ahead to fourth-quarter Canadian GDP data on Friday. 
    "The trend is still for further softness in our view. So
whatever impact today ... we could return to the negative CAD
trend later on this week, particularly with the GDP," said Greg
Moore, FX Strategist at TD Securities.
    "The expectation is for the market to see sub-trend GDP
growth, so I wouldn't look for too much of a bid tone between
now and Friday," said Matt Perrier, managing director of foreign
exchange sales at BMO Capital Markets.
    Adding to the negative tone were worries that an uncertain
outcome from the election in Italy, the euro zone's
third-largest economy, will fragment the government and endanger
the country's current economic reform program, reigniting the
region's debt crisis.
    Government bond prices rose across the curve, with the price
of a two-year Canadian government bond climbing 1
Canadian cent, to yield 1.011 percent. The benchmark 10-year
bond was up 4 Canadian cents, yielding 1.863