CANADA FX DEBT-C$ firms to 7-wk high after Canada trade deficit shrinks

* C$ at C$0.9868 vs US$, or $1.0134
    * C$ touches session high at C$0.9858, or $1.0144
    * Canada posts narrower-than-expected trade deficit of C$169
    * Bond prices ease across the curve

    By Solarina Ho
    TORONTO, Dec 11 (Reuters) - Canada's currency was steady on
Tuesday after briefly touching its strongest level in nearly two
months against the U.S. dollar following data that showed
Canada's trade deficit unexpectedly shrank in October.
    Canada posted a trade deficit of C$169 million ($171
million) in October from a revised C$1.01 billion deficit in
September as imports fell 1.2 percent while higher prices and
volumes drove up exports by 1.0 percent. Analysts had expected a
shortfall of C$1.2 billion. 
    "It's indicating a possible bounce back in growth, that's
probably supporting the Canadian dollar," said Paul Ferley,
assistant chief economist at Royal Bank of Canada.
    "It's better than expected so (the Canadian dollar) will
provide a little bit of lift, but I think the impact could be
fairly short-lived until we get further confirmation of
indications of growth bouncing back here in Canada for the final
quarter of this year."
    The data was in contrast to U.S. trade data, which showed
its deficit widened in October. Exports suffered their biggest
drop in nearly four years, indicating slowing global demand was
spilling over into the already struggling U.S. economy.
    At 9:54 a.m. (1454 GMT), the Canadian dollar stood
at C$0.9868 versus its U.S. counterpart, or $1.0134, little
changed from Monday's session close at C$0.9870, or $1.0132.
     The currency touched a session high after the Canadian
trade data release. It hit C$0.9858, or $1.0144, its strongest
level since Oct. 19, but was still stuck in a narrow range of
between $0.9858 to $0.9880.
    It underperformed against other major currencies against a
broadly weaker greenback, including the euro after
better-than-expected German investor sentiment data.
    "As the euro has rallied, you've seen some weakness not only
in the U.S. dollar but in the Canadian dollar against the
crosses," said Matt Perrier, director of foreign exchange sales
at BMO Capital Markets.
    The other main focus for investors was a meeting of the
Federal Reserve and "fiscal cliff" talks in the United States to
avoid $600 billion of previously drawn-up spending cuts and tax
hikes set to begin in the new year.
    When the Fed concludes its meeting on Wednesday, the central
bank is expected to extend its asset-purchase scheme and commit
to buy $45 billion of U.S. debt each month.
    A close higher on Tuesday would mark the sixth straight
daily advance for the currency after the Canadian government's
approval of two big takeovers and a hawkish sounding central
bank boosted confidence over the past week.
    Perrier pointed to U.S. dollar support around C$0.9845,
followed by C$0.9815-20.
    He noted resistance in the C$0.9910-20 area. "You'd probably
see some of the more recent entrants into the short
dollar/Canada trade probably feel a little bit of pain on a move
through there," Perrier added.
    Canadian bond prices eased across the curve as global stock
markets advanced, buoyed by the pick-up in German confidence and
expectations the Federal Reserve will keep pumping money into
the U.S. economy. 
    Canada's two-year bond lost 3 Canadian cents to
yield 1.073 percent, and the benchmark 10-year bond 
gave back 16 Canadian cents to yield 1.718 percent.