CANADA FX DEBT-Canadian dollar posts largest weekly decline since February against resurgent US counterpart

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Loonie hits a four-month low at 1.3858

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For the week, the currency was down 1.1%

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Canadian GDP rises 0.2% in July

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10-year yield touches a two-week high

By Fergal Smith

TORONTO, Sept 26 (Reuters) - The Canadian dollar steadied against its U.S. counterpart on Friday as domestic data showed the economy growing faster than expected in July, but the currency still posted a steep weekly decline.

The loonie was trading nearly unchanged at 1.3938 per U.S. dollar, or 71.75 U.S. cents, after earlier touching its weakest level since May 20 at 1.3958. For the week, the currency was on track to lose 1.1%, which would be its largest weekly decline since February.

"The pressure on the CAD stems from the broader rise in the USD, wider US-Canada spreads and softer risk appetite," Shaun Osborne and Eric Theoret, strategists at Scotiabank, said in a note.

The U.S. dollar has rallied this week against a basket of major currencies after data showed U.S. economic resilience, potentially complicating the Federal Reserve's efforts to cut interest rates.

The Canadian 2-year yield was trading 114 basis points below the equivalent U.S. rate, with the spread widening from 92 basis points toward the end of August. Investors tend to favor the higher-yielding currency.

Canada's monthly gross domestic product rebounded from three months of contraction to grow by 0.2% in July, eclipsing forecasts for a gain of 0.1%, as mining, manufacturing and wholesale trade boosted growth. An advance estimate for August was less upbeat, showing that GDP was essentially unchanged.

The price of oil, one of Canada's major exports, rose 0.9% to $65.53 a barrel as Ukraine's drone attacks on Russia's energy infrastructure cut the country's fuel exports.

Canadian bond yields edged higher across the curve. The 10-year was up one basis point at 3.241%, after earlier touching its highest level since September 9 at 3.250%. (Reporting by Fergal Smith; editing by Diane Craft)