CANADA FX DEBT-C$ weakens as Canada's GDP data disappoints, oil falls

(New throughout, updates prices and market activity, adds
comment from analyst, details on currency's performance)
    * Canadian dollar ends at C$1.3110, or 76.28 U.S. cents
    * Loonie touches its weakest since May 24 at C$1.3135
    * Bond prices higher across the maturity curve

    By Fergal Smith
    TORONTO, May 31 (Reuters) - The Canadian dollar weakened to
a one-week low against its U.S. counterpart on Tuesday after
Canada's economy accelerated less than forecast and oil fell,
while firm U.S. economic data left the door open to interest
rate increases by the Federal Reserve.
    The losses left the loonie more than 4 percent lower for the
month of May, while it has fallen 5 percent since reaching a
10-month high at C$1.2461 on May 3.
    Canada's gross domestic product (GDP) grew at a 2.4 percent
annualized rate in the first quarter, shy of analysts'
expectations for 2.9 percent. Moreover, a deeper-than-expected
0.2 percent drop in March GDP left a weak starting point for the
second quarter.    
    "It is going to make the Bank (of Canada) cautious, but they
are probably going to see some sizable swings in the GDP numbers
in the next couple of quarters, reflecting the shifts in oil
production," said Paul Ferley, assistant chief economist at
Royal Bank of Canada.
    The central bank has already signaled a likely contraction
in second quarter growth after wildfires disrupted oil
production in Alberta.
    U.S. consumer spending recorded its biggest increase in more
than six years in April and inflation rose steadily, more signs
of an acceleration in economic growth that could persuade the
Federal Reserve to raise interest rates again as early as June.
    "A recalibration of Fed hike expectations has weighed on the
loonie recently, as higher interest rates would benefit its U.S.
counterpart," said Scott Smith, senior market analyst at
Cambridge Global Payments.
    The Canadian dollar ended at C$1.3110 to the
greenback, or 76.28 U.S. cents, weaker than Monday's close of
C$1.3051, or 76.62 U.S. cents.
    The currency's strongest level of the session was C$1.3016,
while it touched its weakest since May 24 at C$1.3135.
    Oil prices dipped as a stronger dollar and slide in equity
prices sparked profit-taking. U.S. crude futures settled
at $49.10 a barrel, down 23 cents. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 7 Canadian
cents to yield 0.616 percent and the benchmark 10-year
 rising 29 Canadian cents to yield 1.322 percent.
    Falling yields on the Canada two-year bond pushed its  yield
3.2 basis points further below the comparable U.S. Treasury for
a spread of -26.3 basis points, while the Canadian 10-year yield
dropped 4.6 basis points further below the comparable U.S.
Treasury yield, for a spread of -52.8 basis points.

 (Reporting by Fergal Smith; Editing by Chizu Nomiyama and David