(Updates to early afternoon)
* C$ up at C$1.0142 vs US$, or 98.60 U.S. cents
* Euro, stocks higher on stimulus hopes
* Bond prices lower across the curve
By Jennifer Kwan
TORONTO, July 25 (Reuters) - Canada's dollar recovered from a near two-week low on Wednesday, tracking the euro and global shares higher on investors optimism policymakers around the globe will do more to jolt economies back onto the path of economic growth.
Markets have for weeks expected central banks will take action given the European debt crisis and weak economic data globally.
Top U.S. Federal Reserve officials recently spelled out what measures they might take to boost growth and hiring. Fed action could come as soon as next week, as its policy-setting committee meets Tuesday and Wednesday.
"All in all it's really the broader move that has CAD appreciating. It's really just a reminder that the FOMC meeting is coming up and there's the potential for the Fed to sound more dovish or even take policy action," said Camilla Sutton, chief currency strategist at Scotiabank.
ECB Governing Council member Ewald Nowotny on Wednesday said there were arguments for giving Europe's permanent rescue fund a banking license, allowing it to borrow unlimited ECB money, an idea that the central bank has rejected so far.
Investors have become increasingly worried that the force of the new fund would be hugely diminished if, as widely expected, Spain needs a full scale sovereign bailout on top of the rescue deal for its banks.
At around 2:45 p.m. EDT (1845 GMT), the Canadian dollar stood at C$1.0142 against the greenback, or 98.60 U.S. cents, up from Tuesday's North American session close at C$1.0204 versus its U.S. counterpart, or 98.00 U.S. cents. Overnight, it hit C$1.0232, or 97.73 U.S. cents, its weakest level since July 12.
"That gave markets a bit of a boost pretty much across the board and that enabled them to overlook the ... poor data overnight," said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets.
Weighing heavily on global sentiment earlier, data showed Britain's economy shrank deeper into recession than expected in the second quarter of 2012, battered by everything from an extra day's holiday to budget austerity and the neighboring euro zone crisis.
German business sentiment also dropped in July to its lowest level in more than two years, adding to signs that Europe's largest economy is losing momentum along with its immunity to fallout from the region's deepening problems.
In the absence of any major surprises, Sutton said anticipates the currency will trade in a tight range of C$1.01-C$1.0190 against the greenback overnight.
Canadian bond prices retreated across the curve with the two-year bond down 7 Canadian cents to yield 0.962 and the benchmark 10-year bond off 10 Canadian cents to yield 1.587 percent.
Elsewhere, an auction of 10-year Canadian government bonds on Wednesday produced an average yield of 1.705 percent, the lowest average yield in at least 5 years. (Editing by Theodore d'Afflisio)