CANADA FX DEBT-C$ soars on rebounding risk sentiment

   * C$ touches high of 95.37 U.S. cents

 * Bonds fall, risk appetite up on strong economic data

 * Canada C$1.4 bln bond due 2041 yields 3.489 pct
 (Updates figures, adds bond auction details)

 TORONTO, Sept 1 (Reuters) - Canada's dollar soared more
than a penny against the U.S. currency on Wednesday and bond
prices sank as risk appetite was revived on strong U.S. and
overseas data that eased recent concerns about the recovery.

 Major U.S. stock indexes rose more than 2 percent after a
closely watched report showed U.S. manufacturing grew faster
than forecast and chalked up a 13th straight month of
expansion.  [ID:nN01115840]

 That followed data that showed China's manufacturing sector
rebounded in August after slowing for several months, while
Australia's economy grew at the fastest pace in three years
last quarter.

 The reports offered some good news for investors to hang on
after a recent string of weak U.S. and Canadian data.
[ID:nTOE68001O] [ID:nSGE67U0L3]

 The currency's rise is "basically a reflection of better
risk appetite" following the U.S. and overseas reports, which
sent global equities higher, said Mark Chandler, head of
Canadian fixed income and currency strategy at RBC Capital
Markets.

 "Both the Australian data and the China data gave a little
bit of relief. We've had some pressure on the global growth
story," Chandler added.

 The Canadian currency CAD=D4 rose as high as C$1.0485 to
the U.S. dollar, or 95.37 U.S. cents, up sharply from C$1.0665
to the U.S. dollar, or 93.76 U.S. cents, at Tuesday's close. At
12:49 p.m. (1649 GMT), it was at C$1.0507 to the U.S. dollar,
or 95.17 U.S. cents.

 The Canadian dollar starts the month on a firm note after
falling 3.6 percent in August.

 No more domestic economic reports are due this week,
leaving market players to consider how external data will
influence the Bank of Canada heading into next week's rate
decision. The bank has suggested further rate hikes will be
weighed against both domestic and global developments.

 The next key indicator will be Friday's U.S. payrolls
report.

 The bank's Sept. 8 rate decision is one of the closest
calls in some time, with market pricing, as measured by a
Reuters calculation of yields on overnight index swaps, roughly
split between a quarter-point rate hike or a no change in
interest rates BOCWATCH.

 However, most of Canada's primary securities dealers,
surveyed by Reuters on Tuesday, still forecast the central bank
will raise its key rate by a quarter point to 1.0 percent. But
they also forecast the rate increase will be the last of 2010
because of the slowing economy. [ID:nN31267387]

 BONDS DROP

 Canada's two-year bond CA2YT=RR fell 12 Canadian cents to
yield 1.272 percent, while the 10-year issue CA10YT=RR
dropped 73 Canadian cents to yield 2.860 percent.

 Elsewhere, the Bank of Canada said its C$1.4 billion
auction of 4.0 percent government of Canada bonds due June 1,
2041 produced an average yield of 3.489 percent.
[ID:TOR007782]

 "It was relatively well received," said Chandler.

 "It helped that yields backed up so much prior to the
auction, but in general Canada has underperformed relative to
the U.S. over the last little while, so there were people that
were looking for opportunities to go long Canadian assets."
 (Additional reporting by by Ka Yan Ng; editing by Rob Wilson)