CANADA FX DEBT-C$ gives up post-Bank of Canada gains as oil slides

(Adds closing figures, Knightsbridge comment, details)
    * Canadian dollar at C$1.3250 or 75.47 U.S. cents
    * Bond prices mostly lower the maturity curve

    By Solarina Ho
    TORONTO, Sept 9 (Reuters) - The Canadian dollar gave up its
rally against the greenback on Wednesday as U.S. crude oil
prices fell on demand worries, overshadowing the Bank of Canada,
which kept its key interest rate steady.
    The central bank, which had already cut rates twice this
year by 25 basis points each time, held its target for the
overnight rate steady at 0.5 percent, stating that the previous
cuts were still stimulating the economy. 
    Recent data has shown some improvements in the Canadian
economy, helped by solid household spending and a firm U.S.
recovery, as well as a weak Canadian dollar.
    "The tone of the Bank of Canada can quickly change if
there's any further deterioration in oil prices, or if China
stumbles again, or if we see any type of weakness in the
Canadian economy," said Rahim Madhavji, president at, adding that the statement was optimistic
compared to what he had expected.
    The Canadian dollar finished at C$1.3250 to the
greenback, or 75.47 U.S. cents, weaker than the Bank of Canada's
official close of C$1.3205, or 75.73 U.S. cents on Tuesday.
    The loonie, which was broadly weaker against nearly all of
its key currency counterparts by the end of the session, had
rallied as strong as C$1.3155 after the decision was announced.
    Markets had been pricing in a more than 30 percent chance of
a 25 basis point interest rate cut in October ahead of
Wednesday's decision. That has since been pared back to just
over 20 percent.
    U.S. oil prices settled at $44.15 a barrel, down $1.79, or
3.9 percent, as ample supply stirred worries over demand in a
lackluster economic environment, particularly out of key
consumer, China. As a major exporter of the commodity, Canada is
sensitive to crude price movements. 
    Going forward, Madhavji said there were few catalysts to
drive the Canadian dollar in the short term, and that the
currency was expected to remain rangebound between C$1.3050 and
    Canadian government bond prices were mostly lower across the
maturity curve, with the two-year price slipping 5
Canadian cents to yield 0.459 percent and the benchmark 10-year
 falling 23 Canadian cents to yield 1.495 percent.
    The Canada-U.S. two-year bond spread narrowed to -28.2 basis
points, while the 10-year spread narrowed to -70.0 basis points.

 (Reporting by Solarina Ho; Editing by Meredith Mazzilli)