CANADA FX DEBT-C$ holds near 7-week high ahead of ECB

* C$ session high was C$1.0120 vs US$, or 98.81 U.S. cents
    * Ends at C$1.0132, or 98.70 U.S. cents
    * Hits 2-yr high of C$1.2655 vs euro, or 79.02 euro cents
    * Bond prices edge higher

    By Claire Sibonney
    TORONTO, July 4 (Reuters) - The Canadian dollar hovered near
a seven-week high against the U.S. dollar and two-year peak
against the euro on Wednesday as grim economic data heightened
expectations the European Central Bank was about to cut interest
    Trading activity was subdued with U.S. markets closed for
the Independence Day holiday and investors cautious ahead of
policy decisions from the ECB and Bank of England on Thursday,
as well as North American jobs data on Friday.
    "Everyone in the world is looking for further stimulus and
that's why we're at these elevated levels," said John Curran,
senior vice president at CanadianForex, who noted that investors
will also be paying attention to a Spanish bond auction on
    Data on Wednesday showed activity in Germany's services
sector unexpectedly stagnated in June. And while a contraction
in France's services sector eased, business expectations slumped
to their lowest level in three years, underlining how bleak
conditions in Europe are.  
    The reports solidified the view that the European Central
Bank will cut interest rates to a record low on Thursday in a
move that could drive stock markets higher and further lift
commodity prices and commodity-linked currencies such as the
Canadian dollar. 
    The Canadian dollar rallied to a two-year high of
C$1.2655 versus the single European currency, or 79.02 euro
cents, its strongest level since June 2010.
    Meanwhile, the BoE is seen launching a third round of
monetary stimulus on Thursday, moving to counter a recession and
the effects of a worsening debt crisis in the euro zone just two
months after calling a halt to the program. 
    The Canadian currency ended at C$1.0132 versus the
greenback, or 98.70 U.S. cents, a tad lower than Tuesday's North
American session close of C$1.0125.
    "I think we're just seeing a bit of to-ing and fro-ing ahead
of the event risks that come up in the next couple days in thin
markets with obviously the U.S. being out (on holiday)," said
Adam Cole, global head of FX strategy at RBC Capital Markets in
    The Canadian currency's high against the U.S. dollar on
Wednesday was $1.0120, or 98.81 U.S. cents, its strongest level
since May 17.
    Cole said he expected the Canadian dollar to stick to a
narrow range between C$1.0120-C$1.0150 heading into Thursday.
    Strategists surveyed in a Reuters poll released on Tuesday
forecast the currency will weaken over the next six months
before firming to the one-for-one mark with the U.S. dollar, 
helped by the prospect of central bank easing abroad even as the
Bank of Canada looks to tighten monetary policy. 
    Canadian bond prices crept up across the curve. Canada's
two-year government bond rose 3 Canadian cents to
yield 1.033 percent, while the benchmark 10-year bond
 added 27 Canadian cents to yield 1.712 percent.