CANADA FX DEBT-C$ hits 1-week low ahead of central bank statement

(Adds analyst's comment, updates prices to close)
    * Canadian dollar at C$1.0898 or 91.76 U.S. cents
    * Bond prices lower across the maturity curve

    By Leah Schnurr and Alastair Sharp
    TORONTO, June 2 (Reuters) - The Canadian dollar weakened to
its lowest level against the greenback in more than a week on
Monday, with investors waiting for the Bank of Canada's policy
statement on Wednesday in which it is expected to hold rates
    The caution muted the impact of encouraging economic data
out of China. Chinese data can often boost the loonie given
Canada's role as a major supplier of natural resources to the
world's second-largest economy.
    Analysts expect the central bank to look past a recent
increase in Canadian inflation and maintain a largely dovish
tone that has helped weaken the currency since last year.
    "The Bank of Canada will probably be talking down the
stronger inflation numbers we've been seeing lately," said Don
Mikolich, executive director of foreign exchange sales at CIBC
World Markets in Toronto.
    China's factory activity expanded at the fastest pace in
five months in May as new orders rose. 
    But that didn't stop the Canadian dollar from extending
Friday's decline, which was prompted by disappointing domestic
economic growth in the first quarter. 
    Firmer yields for U.S. Treasuries following last week's rout
also gave the U.S. dollar a lift to the detriment of the loonie,
said Scott Smith, senior market analyst at Cambridge Mercantile
Group in Calgary.
    The Bank of Canada, under Governor Stephen Poloz, has taken
a neutral stance since late last year and has flagged its
concerns about weak domestic inflation. Investors are watching
to see if it will alter its tone after a recent pick up in
    "There won't be a huge amount of large positions being taken
heading into the Bank of Canada. That being said, I don't think
we'll see a material deviation from what we've heard previously
from Governor Poloz," Smith said.
    "He'll try to stay away from any language that materially
strengthens the Canadian dollar because he knows how important a
weak Canadian dollar is to the export sector and the economy,
and hence the overall recovery in Canada."
    The Canadian dollar ended the session at C$1.0898
to the greenback, or 91.76 U.S. cents, not far from its session
low of C$1.0905. The currency was weaker than Friday's close of
C$1.0842, or 92.23 U.S. cents.
    CIBC's Mikolich said the breach of the C$1.09 level makes
C$1.0925 the next technical level to watch.
    Canadian government bond prices were lower across the
maturity curve, with the two-year down 2 Canadian
cents to yield 1.064 percent and the benchmark 10-year
 down 30 Canadian cents to yield 2.282 percent.

 (Editing by Nick Zieminski and Peter Galloway)