CANADA FX DEBT-C$ slides to March levels on Canada trade deficit, global worries

* Canadian dollar at C$1.2755 or 78.40 U.S. cents
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, July 7 (Reuters) - The Canadian dollar tumbled to
its weakest level against the greenback since March on Tuesday
after data showed Canada posted a bigger-than-expected trade
deficit in May.
    The C$3.34 billion deficit was the second biggest on record
and the eighth monthly deficit in a row as exports declined 0.6
percent and imports rose 0.2 percent.
    The trade numbers were the latest in a string of
disappointing data that could push the Bank of Canada to cut
interest rates next week to try to stimulate the economy. TD
Bank and CIBC are among those already predicting the central
bank will cut rates.
    At 9:39 a.m. EDT (1339 GMT), the Canadian dollar 
was at C$1.2755 to the greenback, or 78.40 U.S. cents, softer
than it was just before the data was released, and sharply
weaker than the Bank of Canada's official close of C$1.2652, or
79.04 U.S. cents, on Monday.
    Before the trade data on Tuesday, the loonie was already
weaker due to Monday's big drop in the price of oil, a major
Canadian export, and on safe-haven buying of the U.S. dollar
amid ongoing euro zone jitters.
    "The U.S. dollar is pretty strong today in general, so
there's a flight to dollar safety," said Avery Shenfeld, chief
economist at CIBC World Markets.
    "We're also still reacting to the huge dive in oil
yesterday, so it's not surprising to see the Canadian dollar
weaker on a number of fronts, both domestic and global."
    Crude prices rose on Tuesday after one of the biggest
declines of the year on Monday, but appeared vulnerable to
another fall after China's stock market took another hit and
Greece edged closer to leaving the euro zone. 
    The Canadian dollar, which has retreated more than 2 percent
in the past week, traded between $1.2644 and C$1.2763 on
Tuesday, its weakest level since March 31.
    The U.S. trade deficit also widened in May due to a drop in
exports, which could fuel worries about overseas demand and a
strong greenback. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 10
Canadian cents to yield 0.431 percent and the benchmark 10-year
 rising 145 Canadian cents to yield 1.544 percent.
    The Canada-U.S. two-year bond spread was -13.8 basis points,
while the 10-year spread was -66.6 basis points.

 (Reporting by Solarina Ho; Editing by Peter Galloway)