* Canadian dollar at C$1.0677 or 93.66 U.S. cents * Bond prices higher across maturity curve (Recasts with Canadian dollar turning lower, adds details on market activity, quotes, updates prices) By Leah Schnurr TORONTO, July 7 (Reuters) - The Canadian dollar weakened against the greenback on Monday as disappointing domestic economic reports pulled the loonie further from the six-month high it hit last week.
Data that showed a 13.8 percent surge in building permits in May had put the loonie on a strong footing in the early morning, but the currency gave up those gains after a report showed the pace of purchasing activity shrank for a second month in a row in June.
The decline was sharpened by a survey from the Bank of Canada that showed overall business sentiment was little changed in the second quarter.
The survey also showed that fewer firms expected to have difficulty meeting a surge in demand in the second quarter than did in the first quarter, a sign that pressures on production capacity have lessened.
Analysts said the survey could allow the Bank of Canada to stick to its neutral stance when it releases its monetary policy statement next week.
A surprisingly strong inflation reading last month has been a major factor in the loonie's recent rally and some had speculated that the reading might make it more difficult for the central bank to justify its neutral stance.
"We were of the mind the Bank of Canada would still try to find a way to be dovish and we were wondering how creative they would have to be, but this business outlook survey does make it marginally easier for them to communicate that theme to the market," said David Tulk, chief Canada macro strategist at TD Securities in Toronto.
"So maybe that's starting to trickle into the view of the market insofar as the currency is moving." The Canadian dollar ended the North American session at C$1.0677 to the greenback, or 93.66 U.S. cents, weaker than Friday's close of C$1.0657, or 93.84 U.S. cents.
Still, the Canadian dollar is up 2.5 percent since early June after a rally fueled by the firmer inflation data, stronger oil prices and a more robust outlook for global growth.
Investors rushing to cover their Canadian dollar short positions accentuated the upward momentum.
Data from the Commodity Futures Trading Commission's weekly commitments of traders report showed the net Canadian dollar position has shifted to positive for the first time since February 2013, highlighting the favorable turn in sentiment toward the currency, Scotiabank wrote in a note.
"We started to approach some technical levels in the C$1.064 area," Tulk said. "You overlay the technicals with some of the fatigue we saw in some of the positioning data as well, it seems like we put in a bit of a floor for the U.S. dollar-Canadian dollar in the short term." Canadian government bond prices were higher across the maturity curve, with the two-year up 1.3 Canadian cents to yield 1.131 percent. The benchmark 10-year was up 22 Canadian cents to yield 2.307 percent.
(Editing by Peter Galloway)
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