CANADA FX DEBT-C$ firms to 1-week high, helped by producer prices

* Canadian dollar at C$1.1097 or 90.11 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, Feb 3 (Reuters) - The Canadian dollar strengthened
to its highest level in a week against the greenback on Monday,
helped by a bigger than expected rise in Canadian producer
prices and as investors consolidated positions after the
currency's recent declines.
    The loonie was also given a boost by U.S. data that showed a
sharp drop in manufacturing in January, hinting at a slowing
economy. That sparked investor speculation that the U.S. Federal
Reserve may have to refrain from a further reduction of its
stimulus program.
    The Canadian dollar has come under pressure in recent
months, with selling intensifying in January, as investors
turned increasingly bearish toward it. The U.S. dollar
appreciated nearly 5 percent against the loonie in January.
    "This is probably a move that had run very quickly and is
looking just a bit fatigued as we take a step back and assess
the landscape and try to figure out why exactly we moved so far
so fast," said David Tulk, chief Canada macro strategist at TD
Securities in Toronto.
     The possibility of a fast Fed wind-down of its stimulative
asset purchases has typically boosted the greenback against the
Canadian dollar and other currencies. But Monday's weak U.S.
manufacturing data made that possibility look more remote and
the U.S. dollar took a hit, falling 0.4 percent against a basket
of currencies. 
    "To see the Canadian dollar catch a bit of a break in that
environment does make a bit of sense," Tulk said.
    Data at home showed the recent weakness in the Canadian
dollar helped producer prices rise by 0.7 percent in December, 
with higher energy prices also contributing to the gain.
Economists had forecast an increase of 0.3 percent. Raw
materials prices also rose. 
    The figures were the first release in a busy data calendar
this week, which will culminate with the closely watched
unemployment report on Friday. Hiring in Canada is expected to
have picked up in January after the economy unexpectedly shed
jobs the month before. 
    The Canadian dollar ended the North American
session at C$1.1097 to the greenback, or 90.11 U.S. cents,
stronger than Friday's close of C$1.1138, or 89.78 U.S. cents.
    Data on Friday showed investors had pared back their short
positions on the Canadian dollar. 
    "A lot of people have booked a lot of profits on the
Canadian dollar weakness story, something that was quite
compelling as a narrative to start the year, but just
appreciating how far we've come, maybe some of the momentum has
scaled back a little bit," Tulk said.
    The Canadian dollar briefly fell through the psychologically
important C$1.12 area on Friday before bouncing higher. That the
currency was not able to sustain the move past C$1.12 helped the
loonie gain some strength on Monday, said Scott Smith, senior
market analyst at Cambridge Mercantile Group in Calgary.
    "The trade has been a little crowded for a while, we needed
a little washout and reset," Smith said. "So it's along the
lines that we expect a little bit of a consolidation here until
we see the catalyst for the next move higher" for the U.S.
dollar-Canadian dollar pairing.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 3.7 Canadian
cents to yield 0.931 percent and the benchmark 10-year
 up 35 Canadian cents to yield 2.297 percent.