CANADA FX DEBT-C$ loses steam in muted session

* Canadian dollar at C$1.0657 or 93.84 U.S. cents
    * Bond prices mostly lower across maturity curve

 (Recasts with the Canadian dollar turning lower, adds details,
quotes, updates prices)
    By Leah Schnurr
    TORONTO, July 4 (Reuters) - The Canadian dollar weakened
against the greenback on Friday, pulling back from recent strong
gains in a quiet session with markets south of the border closed
for the Fourth of July holiday.
    The loonie touched a six-month high in the previous session
as analysts viewed a robust U.S. jobs report as ultimately
benefiting Canada, even though the data initially knocked the
currency lower.
    With fewer market participants than usual and a lack of
fundamental drivers, the currency held on to its gains early on
Friday but then drifted lower through the session, but it is
still up 2.6 percent since early June.
    "The Canadian dollar has obviously still held onto a large
portion of its gains over the last couple weeks," said Rahim
Madhavji, president at in Toronto.
    "The loonie still does have a lot of momentum on its side."
    The Canadian dollar ended the North American
session at C$1.0657 to the greenback, or 93.84 U.S. cents,
weaker than Thursday's close of C$1.0639, or 93.99 U.S. cents.
    A number of factors combined to help the Canadian dollar run
up over the past month, including higher than expected Canadian
inflation in May, rising oil prices, and investors rushing to
cover short positions in the currency.
    "There has been this broad-based shift overall, so it's not
like it's just been one event that has driven Canadian dollar
strength, it really has been little pieces coming together from
very different areas," said Camilla Sutton, chief currency
strategist at Scotiabank in Toronto.
    While the loonie has had traction, many analysts say the
rally is likely reaching its peak. 
    Analysts will be watching to see how the Bank of Canada
reacts to the stronger-than-expected inflation figures when it
releases its next monetary policy statement in mid-July.
    "Pretty quickly we're going to reach a point where the
Canadian dollar has likely gone too far," Sutton said. "I would
expect the Canadian dollar likely feels more comfortable around
C$1.08 than it does around C$1.06."
    Canadian government bond prices were mostly lower across the
maturity curve, though the two-year was unchanged to
yield 1.135 percent. The benchmark 10-year was down
8 Canadian cents to yield 2.332 percent.

 (Editing by Sandra Maler; and Peter Galloway)