C$ gains with solid GDP data, up 0.4 percent for week

By Alastair Sharp TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Friday as its economy grew more than expected in July, but its muted gains over a week in which oil prices surged raised questions about the currency's ability to further appreciate. Canada's gross domestic product grew 0.5 percent in July, fueled by a rebound in oil and gas extraction after wildfires in Alberta earlier this year, Statistics Canada data showed. The economic growth topped analysts' forecasts for a gain of 0.3 percent. "All in all a solid report ... it should definitely push back against some of the recent pessimism we see in the market," said Andrew Kelvin, senior rates strategist at TD Securities. The currency's muted response to that data and the sharp weekly gain in the price of oil, a major Canadian export, raised concerns for Adam Button, a currency analyst at ForexLive in Montreal. "The inability of the Canadian dollar to make any kind of significant gain on Friday despite a stellar GDP report is a worrisome sign," he said, calling the loonie "extremely vulnerable". The currency settled at C$1.3117 to the greenback, or 76.24 U.S. cents, stronger than Thursday's close of C$1.3149, or 76.05 U.S. cents. Its strongest level of the session was C$1.3088, while its weakest was C$1.3195. It rose 0.4 percent over the week, while U.S. crude prices were up about 7 percent, helped by Wednesday's announcement of an OPEC deal aimed at removing some production from an oversupplied market. On Tuesday, the loonie hit its weakest in nearly six months. In other domestic data, producer prices unexpectedly fell in August as meat and dairy products saw the largest decrease in nearly nine years, while lower prices for energy and petroleum products also weighed, data from Statistics Canada showed. Canadian government bond prices fell across the yield curve, with the two-year down 4.5 Canadian cents to yield 0.519 percent and the benchmark 10-year off 40 Canadian cents to yield 0.997 percent. Earlier, the 10-year yield touched a fresh historic low at 0.904 percent. ForexLive's Button said those trading the U.S.-Canada currency pair may be starting to get jitters about what a possible Donald Trump victory in November's U.S. presidential election could mean for Canada's trade relationship with the United States. "It's like a Brexit for Canada and someone else is doing the voting," he said. (Additional reporting by Fergal Smith; Editing by Nick Zieminski)