* Canadian dollar at C$1.1242 or 88.95 U.S. cents * Bond prices lower across the maturity curve (Adds details, quote, updates prices) By Leah Schnurr TORONTO, March 20 (Reuters) - The Canadian dollar was little changed against the greenback on Thursday, recovering after hitting a 4-1/2-year low as investors mulled whether a raise in U.S. interest rates could come sooner than had been anticipated.
Federal Reserve Chair Janet Yellen said on Wednesday the Fed will probably end its massive bond-buying program this fall, and could start raising rates around six months later.
The possibility of a U.S. rate hike on the horizon had weighed on the Canadian dollar earlier in the day, but optimism that a stronger economic recovery south of the border will benefit Canada's economy helped the currency recoup its losses. The loonie also firmed against several other major currencies.
"It's the broader feeling that if the U.S. is actually moving toward a potential interest rate hike as early as the second quarter of 2015, if the economy is that strong, that's actually probably beneficial to Canada in the longer run," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.
"It's still negative for the Canadian dollar against the U.S. dollar, but it's positive for the Canadian dollar against other crosses like the euro." The Canadian dollar ended the North American session at C$1.1242 to the greenback, or 88.95 U.S. cents, slightly firmer than Wednesday's close of C$1.1245, or 88.93 U.S. cents. The currency earlier traded as low as C$1.1279, its weakest since July 2009.
The rethink on U.S. rates comes at a time when the Bank of Canada has left the door open to a possible rate cut.
Bank of Canada Governor Stephen Poloz warned of the risk of a prolonged period of sluggish growth and low interest rates in a speech earlier this week that analysts said was more dovish than expected.
When asked whether he could rule out a rate cut, Poloz said he could not, which markets latched on to and sent the Canadian dollar lower over the past two sessions.
"Poloz is recognizing that the only way to grow the Canadian economy at this point is through the export channel, so even though he won't admit it, he would like to see a weaker currency," said David Tulk, chief Canada macro strategist at TD Securities in Toronto.
The loonie has traded in a relatively narrow range in recent weeks, consolidating after a sharp selloff in January. Some analysts expect the move lower over the past couple sessions could mark a return of the bearish attitude prevalent at the start of the year.
"What's transpired this week has been very, very important in the sense that we now have a Bank of Canada governor who appears more dovish than we expected and a Fed chair who appears more hawkish than we expected, the combination of which is Canadian dollar negative," said Sutton.
Combined with expected economic underperformance against the United States and negative sentiment over the currency, "it does provide reason to think investors are back into building short Canadian dollar positions," she said.
Canadian government bond prices were lower across the maturity curve, with the two-year off 2 Canadian cents to yield 1.073 percent and the benchmark 10-year down 19 Canadian cents to yield 2.499 percent.
(Editing by James Dalgleish)