July 20 (Bloomberg) -- The Canadian dollar rose as investors speculate the central bank will at least match the Federal Reserve in raising interest rates, stemming the yield disadvantage of Canadian bonds.

The Bank of Canada signaled last week it will raise rates to contain inflation. Canada's benchmark 10-year government bond is yielding 27 basis points less than the comparable U.S. Treasury note, close to the widest yield gap since June 2000. During the past decade, Canadian 10-year bonds averaged 35 basis points higher in yield over U.S. notes.

``Expectations that the bank will begin raising rates this summer is reducing investor concern that Canadian rates will fall further below U.S. yields,'' said Andrew Pyle, head of capital markets research at Scotia Capital Inc in Toronto. Canadian government bond yields become increasingly attractive to investors as the U.S. yield advantage diminishes.

Canada's dollar rose to 82.27 U.S. cents at 8:12 a.m. in Toronto, from 81.99 U.S. cents late yesterday. One U.S. dollar buys C$1.2156.

Statistics Canada will report May wholesale sales and the June index of leading economic indicators at 8:30 a.m. in Ottawa. Wholesale sales growth is forecast to slow to a 0.5 percent pace from the 0.9 percent gain in April, according to the median forecast of 12 economists in a Bloomberg News survey. The leading index is forecast to rise 0.3 percent, matching the May increase, 16 economists say.

To contact the reporter on this story: Dawn Desjardins in Toronto at ddesjardins1@bloomberg.net

Last Updated: July 20, 2005 08:19 EDT