CANADA FX DEBT-Canadian dollar adds to monthly decline as domestic economy falters

By Fergal Smith

TORONTO, Oct 31 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Friday, adding to its monthly decline, as domestic data showed a surprise economic contraction in August.

The loonie CAD= was trading 0.2% lower at 1.4020 per U.S. dollar, or 71.33 U.S. cents, after moving in a range of 1.3980 to 1.4035. For October, the loonie was down 0.7%, its second straight monthly decline, even as the Bank of Canada signaled the potential end of its easing cycle.

"The Bank of Canada delivered its fourth rate cut of the year on Wednesday, and the official comments confirmed that the bar to another cut was extremely high," said Tony Valente, senior FX dealer at AscendantFX.

"This bolstered the CAD initially against the USD ... However, a few hours later, the Fed’s hawkish tone quickly unwound those gains. Adding to the pressure, today’s release of Canada’s monthly GDP report showed the economy stagnated in August."

On Wednesday, Federal Reserve Chair Jerome Powell said an interest rate cut in December was not guaranteed, giving the U.S. dollar .DXY a boost.

Canada's GDP fell 0.3% in August following upwardly revised growth of 0.3% in the prior month. Analysts had forecast GDP would be flat.

Advance estimates suggested the economy, which has been held back by trade uncertainty, expanded 0.1% in September and might escape a recession in the third quarter.

U.S. President Donald Trump said the United States and Canada will not restart trade talks, a week after he called off negotiations over an advertisement.

The price of oil CLc1, one of Canada's major exports, was up 0.6% at $60.96 a barrel.

Canadian bond yields were mixed across the curve, with the 10-year CA10YT=RR little changed at 3.130%. On Thursday, the 10-year touched a near three-week intraday high of 3.181%.