• Canadian dollar gains 0.3% against the greenback
• Touches a 12-day high at 1.3542
• Bets increase on BoC cutting by 50 basis points
• Bond yields fall across the curve

TORONTO, Sept 18 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday as the Federal Reserve cut interest rates by half a percentage point, but the move was limited as investors raised bets the Bank of Canada would step up the pace of its easing.

The loonie was trading 0.3% higher at 1.3560 to the U.S. dollar, or 73.75 U.S. cents, after touching its strongest level since Sept. 6 at 1.3542.

The Fed kicked off what is expected to be a steady easing of monetary policy with a larger-than-usual reduction in borrowing costs that followed growing unease about the health of the job market.

"Initial price action in financial markets is consistent with a relatively dovish interpretation of the Fed's likely policy path," said Karl Schamotta, chief market strategist at Corpay.

Wall Street rose, bond yields eased and the U.S. dollar (.DXY) , opens new tab extended recent declines against a basket of major currencies.

The rate decision could "clear the way for an acceleration in easing from other major central banks, making the Bank of Canada more likely to deliver an equivalently sized cut at its October meeting," Schamotta said.

Minutes from the BoC's rate decision earlier this month showed governing council members feeling that, if the economy failed to pick up as anticipated, it might be appropriate to lower the policy rate more quickly.

Investors see a 59% chance the Canadian central bank would ease by 50 basis points in October, up from 46% before the Fed decision. The central bank has cut rates three times since June, moving in quarter-point increments.

Canadian bond yields eased across the curve. The 2-year was down 3.3 basis points at 2.889%, moving closer to the 2-year low it touched during Tuesday's session at 2.845%.

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https://www.reuters.com/markets/currencies/c-hits-12-day-high-fed-opts-supersized-rate-cut-2024-09-18/