CANADA FX DEBT-Canadian dollar weaker as Poloz speaks on untapped growth

(Recasts with Poloz comments, adds quotes, updates prices)

* Poloz speaks on untapped labor potential

* Trading volatile on U.S. data, political headlines

NEW YORK, March 13 (Reuters) - The Canadian dollar weakened against the greenback on Tuesday after Bank of Canada Governor Stephen Poloz said that the countrys economy could grow without spurring inflation, though investor positioning was seen as exaggerating the move. Poloz said that there remains a degree of untapped potential in the Canadian economy, particularly in the labor market, with youth, women and indigenous people representing untapped sources of potential economic growth. Those are all statements hes made in the past; today what he did do is he attached a number to that growth and potential output, said Bipan Rai, director of foreign exchange strategy at CIBC Capital Markets in Toronto. Poloz said that expanding Canadas labor force could increase the countrys potential output by as much as 1.5 percent. That doesnt really explain the outsized market reaction in CAD on its own. Were thinking that most of it could have been driven by positioning and also the fact that the market is sensitive on one side of the Bank of Canadas bias, Rai added. Polozs speech comes after the central bank held interest rates steady last week as expected, while a speech from Deputy Governor Tim Lane on Thursday stuck to the bank's dovish message that it will be cautious in considering further increases.

At 2:06 p.m. EST (1806 GMT) the greenback was up 0.79

percent against the Canadian dollar at C$1.2937.

The U.S. dollar had weakened against the loonie earlier on Tuesday after data showed that U.S. consumer prices cooled in February and after President Donald Trump said he was replacing U.S. Secretary of State Rex Tillerson with Central Intelligence Agency Director Mike Pompeo. Benchmark 10-year Canadian government bond yields fell to 2.21 percent, from 2.24 percent late Monday.

(Editing by Jonathan Oatis and James Dalgleish)