CANADA FX DEBT-C$ reverses losses alongside upturn in oil prices
* Canadian dollar at C$1.1248 or 88.90 U.S. cents * Bond yields recover from lows to turn higher (Recasts with currency's turnaround, adds quotes, updates prices) By Leah Schnurr TORONTO, Oct 16 (Reuters) - The Canadian dollar squeaked out a gain against the greenback on Thursday, recovering from an early drop as oil prices rose and markets stabilized with traders betting that policymakers are still ready to bolster the world economy. The loonie had neared a five-year low in early trading as worries about global economic growth continued to pull financial markets sharply lower. But the release of upbeat U.S. economic data helped to soothe nerves and the Canadian currency later turned around alongside oil prices. Crude was boosted by technical trading ahead of options expiry and after data showed tight U.S. gasoline supplies. Markets were further encouraged after a top U.S. Federal Reserve policymaker said the Fed should keep buying bonds for longer than planned due to volatile markets and falling inflation expectations. The Fed's asset-purchase program is due to wrap up later this month, and speculation about how long it will be before the U.S. central bank starts to raise interest rates has contributed to the recent market turmoil. "That was a bit of a surprise and highlights that the Fed still has ways to delay some of their policy plans," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. "Policymakers are going to be very cautious when they look to raising interest rates or when they look to shifting policy." The Canadian dollar ended the North American session at C$1.1248 to the greenback, or 88.90 U.S. cents, firmer than Wednesday's close of C$1.1258, or 88.83 U.S. cents. The currency has lost about 6 percent since July as the greenback has rallied, but losses had accelerated this week in the midst of the global market rout, particularly in oil, a major Canadian export. Recent weak U.S. and Chinese economic data, along with anxiety about the euro zone's stalling recovery, has heightened concerns over weaker than anticipated global growth. As a major trading partner of the United States, Canada's economic hopes lie in an acceleration of growth south of the border. "If the U.S. can continue to perform reasonably well, and that's a big if, then Canada can hide under the shadow that the U.S. provides, so hopefully that will be the case," said David Tulk, chief Canada macro strategist at TD Securities in Toronto. "But if the U.S. is hit from confidence or any other global themes that stall the U.S. recovery, Canada will continue to languish." Canadian government bond yields also turned around, with the price of the benchmark 10-year down 11 cents to yield 1.929 after yields earlier hit their lowest level since May 2013. The two-year was down 1-1/2 Canadian cents to yield 0.925 percent. (Editing by Peter Galloway)
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