* C$ at C$1.0295 vs US$ or 97.13 U.S. cents
* Factory sales rose by 1.7 percent in July
* Focus on U.S. Fed ahead of Wednesday announcement
* Canadian bond prices mixed
By Leah Schnurr
TORONTO, Sept 17 (Reuters) - The Canadian dollar
strengthened on Tuesday, boosted by surprisingly strong factory
sales, but the currency was kept in a range the day before the
U.S. central bank is expected to announce it will start to
unwind its economic stimulus.
Canadian manufacturing sales rose more than expected in July
as most sectors gained, suggesting economic growth could be
picking up. Still, analysts said more data was needed to
complete the picture.
The data helped support the dollar, but much of investors'
attention was focused south of the border, with the Federal
Reserve kicking off its two-day policy-setting meeting with a
statement to come on Wednesday.
Markets largely expect the Fed will begin slowly withdrawing
its massive economic stimulus program. It is currently buying
$85 billion in assets a month and investors anticipate the Fed
will reduce that by a moderate amount.
"With both the current and potentially future Fed governors
being a little bit more on the dovish side, I think any pullback
in bond buying would be modest, as they've signaled so far,"
said Don Mikolich, executive director of foreign exchange sales
at CIBC World Market.
While the Fed's purchase program - known as quantitative
easing - has boosted equities and other assets this year,
Mikolich said the announcement of a small reduction could be
positive for the Canadian dollar, as it suggests an improving
economy in the United States, Canada's biggest trading partner,
The Canadian dollar ended at C$1.0295 to the U.S.
dollar, or 97.13 U.S. cents, stronger than Monday's session
close of C$1.0325, or 96.85 U.S. cents.
The loonie climbed as high as $1.0275, making a more than
one-month peak.
The Fed announcement is expected at 2:00 pm EDT (1800 GMT)
on Wednesday.
"You've coalesced around a really strong consensus of a
modest taper of 10 to 15 billion dollars, so I think it would
come as quite a surprise to markets if they chose something
different tomorrow," said Mark Chandler, head of Canadian fixed
income and currency strategy at Royal Bank of Canada in Toronto.
At home, investors will also be watching a speech from Bank
of Canada Governor Stephen Poloz scheduled for Wednesday.
Prices for Canadian government bonds were mixed across the
maturity curve, with the two-year bond up 1 Canadian
cent to yield 1.261 percent, and the benchmark 10-year bond
rose 7 Canadian cents to yield 2.769 percent.