CANADA FX DEBT-C$ strengthens as oil vaults more than 10 percent

(Updates with strategist comment, fresh details and closing
    * Canadian dollar at C$1.3218, or 75.65 U.S. cents
    * Bond prices mostly higher across the maturity curve

    By Solarina Ho
    TORONTO, Aug 27 (Reuters) - The Canadian dollar firmed
against its U.S. counterpart on Thursday, as crude prices soared
more than 10 percent following a global equities rally and an
unexpected drop in U.S. oil inventories.
    The loonie, which fell to 11-year lows earlier this week as
investors rushed to safety on worries about slowing growth in
China, also gained against other major currencies.
    The strength came even as the greenback rose against a
basket of currencies following upbeat U.S. data that showed the
economy grew faster than initially thought during the second
quarter. The data was reassuring to investors and central bank
officials preoccupied by worries over China's impact on the
global economy. 
    "Definitely a lot of volatility, a lot of confusion, a lot
of uncertainty. Obviously it all started with China, that's kind
of the elephant in the room," said Rahim Madhavji, President at
    "But what we're seeing today is obviously oil, which is up
very, very sharply ... so that bodes really well for the
Canadian dollar."
    The price of oil, a key Canadian export, was supported by
data on Wednesday showing U.S. crude inventories fell 5.5
million barrels in the week to Aug. 21, the biggest one-week
decline since early June. U.S. prices settled nearly $4 higher,
or 10.26 percent, at $42.56 a barrel. 
    The Canadian dollar closed at C$1.3218 to the U.S.
dollar, or 75.65 U.S. cents, extending Wednesday's gains and
erasing much of the week's volatile losses. The Bank of Canada's
official close on Wednesday was C$1.3315, or 75.10 U.S. cents.
    The Canadian dollar swung broadly during the session,
trading between C$1.3180 and C$1.3305.
    Madhavji expects the loonie to settle back into rangebound
moves, given China's uncertain growth outlook, questions over
where commodities prices are headed and how that might impact
the Bank of Canada's decision making, and as markets await
clarity on the timing of the Federal Reserve's expected interest
rate hike.
    "There are a lot of things pulling at the loonie. It's going
to keep it relatively rangebound until the cards fall on the
table," he said.
    Canadian government bond prices were mostly higher across
the maturity curve, with the two-year price off 3
Canadian cents to yield 0.404 percent and the benchmark 10-year
 sliding 24 Canadian cents to yield 1.467 percent.
    The Canada-U.S. two-year bond spread widened to -29.6 basis
points, while the 10-year spread narrowed to -72.4 basis points.

 (Reporting by Solarina Ho; Editing by Meredith Mazzilli)