CANADA FX DEBT-C$ firms, but set for weakest year since 2008

* Canadian dollar at C$1.0627 or 94.10 U.S. cents
    * Bond prices lower across the maturity curve

    By Leah Schnurr
    TORONTO, Dec 31 (Reuters) - The Canadian dollar firmed
against the greenback on Tuesday, even as it was set to close
out its weakest year since 2008 with analysts expecting a dovish
Bank of Canada will spell more weakness for the currency next
    Trading was expected to be light heading into the New Year's
Day holiday and with no domestic economic data on tap until
later in the week. 
    South of the border, data showed U.S. home price gains
slowed in October, though the report had little impact on the
loonie. Investors will also get a look at U.S. consumer
confidence later in the morning. 
    But traders were mostly focused on the year ahead. Sentiment
has turned bearish against the Canadian dollar in recent months
as the Bank of Canada shifted to a more neutral stance, which
has markets expecting interest rates will stay low for longer.
    The gradual unwinding of the U.S. Federal Reserve's economic
stimulus is also expected to weigh on the Canadian currency next
    "The loonie has been pretty battered over the course of
2013," said Scott Smith, senior market analyst at Cambridge
Mercantile Group in Calgary. 
    "It looks like there's not a lot that's going to be coming
up in the first half of next year that we really see the loonie
gaining back any of that strength." 
    The Canadian dollar was at C$1.0627 to the
greenback, or 94.10 U.S. cents, stronger than Monday's close of
C$1.0640, or 93.98 U.S. cents.
    The Canadian currency was building on the previous session's
momentum in thin trade after Monday's weaker-than-expected U.S.
pending home sales took some of the appeal out of the greenback,
said Smith.
    The loonie has lost more than 7 percent this year, according
to Thomson Reuters data, its biggest decline since a more than
20 percent plunge in 2008, at the heart of the global financial
    Smith sees the Canadian dollar weakening further in the
first half of 2014, but said the currency should get a reprieve
in the latter half of the year as Canada starts to benefit from
a pick-up in the U.S. economic recovery.
    The Canadian dollar could trade between C$1.08 and C$1.0850
in the first quarter, though there is some risk the currency
could drop to C$1.09 to C$1.10 on an interim basis, said Smith.
He sees the loonie firming to the C$1.06 to C$1.05 area in the
last six months of next year.
    Canadian government bond prices were lower across the
maturity curve, with the two-year off 1 Canadian cent
to yield 1.135 percent and the benchmark 10-year 
down 20 Canadian cents to yield 2.765 percent.