CANADA FX DEBT-C$ pares losses as growth data hints at 3rd-qtr turnaround

* Canadian dollar at C$1.3146, or 76.07 U.S. cents
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, Sept 1 (Reuters) - The Canadian dollar was steady
against its U.S. counterpart on Tuesday, sharply paring earlier
losses after second-quarter domestic growth data indicated the
economy was finally turning around heading into the third
    Hit by a plunge in crude prices over the past year, Canada's
economy contracted by an annualized 0.5 percent in the second
quarter, indicating a recession in the first half of the year.
    The downturn prompted the Bank of Canada to cut interest
rates by 25 basis points twice this year. Economic activity in
June grew by a better-than-expected 0.5 percent, however, the
first monthly increase in six months. Economists polled by
Reuters forecast 0.2 percent growth.
    The loonie rallied to a session high shortly after the
figures were released before scaling back.
    "(The increase) was probably more of a reflection of the
June numbers. It does suggest the economy started the third
quarter with a bit of oomph," said Derek Burleton, deputy chief
economist at Toronto-Dominion Bank. "That does suggest at the
margin that some of the expectations of a rate cut are being
    At 9:15 a.m. EDT (1315 GMT), the Canadian dollar 
traded at C$1.3146 to the greenback, or 76.07 U.S. cents, not
far from the Bank of Canada's official close of C$1.3157, or
76.01 U.S. cents on Monday.
    The currency traded between C$1.3116 and C$1.3233 so far in
the session.
    Earlier weakness in the currency stemmed from the latest
economic numbers out of China, which showed its manufacturing
sector was shrinking at the fastest pace in three years and its
services sector was also cooling. 
    The latest round of disappointing numbers from China sowed
renewed fears over how the global economy will be affected by a
slowdown by one of the world's largest economies and commodities
    The report pushed the price of oil, a key Canadian export,
sharply lower. Prior to Tuesday, prices had rallied some 25
percent over three sessions. U.S. crude prices were down
4 percent to $47.22, while Brent crude lost 4.2 percent
to $51.90. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 1 Canadian
cent to yield 0.434 percent and the benchmark 10-year
 rising 41 Canadian cents to yield 1.448 percent.
    The Canada-U.S. two-year bond spread was -29.0 basis points,
while the 10-year spread was -72.6 basis points.

 (Editing by Jeffrey Benkoe)