CANADA FX DEBT-C$ strengthens ahead of Bank of Canada decision as oil rises
* Canadian dollar at C$1.3084, or 76.43 U.S. cents * Bond prices lower across steeper maturity curve TORONTO, Oct 19 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday as oil rose, but gains were restrained as investors braced for the Bank of Canada interest rate decision. The central bank on Wednesday is expected to hold interest rates at 0.50 percent as it waits to see how the economic bounce-back it is anticipating in the second half of the year unfolds. Analysts will look to see if the central bank trims its economic forecasts. U.S. crude prices were up 1.23 percent at $50.91 a barrel, boosted by evidence of declining production in China and falling U.S. inventories, while an upbeat OPEC statement on its planned output cut also supported the market. Oil is one of Canada's major exports. Gains for the loonie came as equity market volatility fell. The CBOE Volatility Index, which is a measure of expected volatility in stock prices, fell 1.6 percent. At 9:19 a.m. EDT (1319 GMT), the Canadian dollar was trading at C$1.3084 to the greenback, or 76.43 U.S. cents, stronger than Tuesday's close of C$1.3119, or 76.23 U.S. cents. The currency's strongest level of the session was C$1.3075, while its weakest was C$1.3129. On Tuesday, the loonie touched its strongest in nearly three weeks at C$1.3051. China reported its economy expanded at a steady 6.7 percent in the third quarter, as expected. China is Canada's second-largest trading partner. Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries. The two-year fell 1 Canadian cent to yield 0.594 percent and the benchmark 10-year declined 22 Canadian cents to yield 1.218 percent. The curve steepened as the spread between the 2-year and 10-year yields widened by 1.9 basis points to 62.4 basis points, indicating underperformance for longer-dated bonds. (Reporting by Fergal Smith; Editing by Will Dunham)
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