CANADA FX DEBT-C$ hits strongest level since July as Fed eyed

* Canadian dollar at C$1.2847, or 77.84 U.S. cents
    * Bond prices lower across maturity curve

 (Adds quotes, updates prices; changes dateline, previously
    By Leah Schnurr
    OTTAWA, Oct 15 (Reuters) - The Canadian dollar hit its
strongest level against the greenback in three months on
Thursday, fueled by expectations that the Federal Reserve could
delay raising U.S. interest rates until next year.
    The gains saw the loonie extend a rally that has the
currency up 3.5 percent so far this month. A raft of
disappointing U.S. data, worries about China's economy and
divided comments from Fed policymakers have raised doubts that
the central bank will be able to start hiking rates before the
end of 2015 as it had planned. 
    "The expectations of a December rate hike have been reduced,
so that has helped the Canadian dollar and weakened the U.S.
dollar pretty much all around," said Hosen Marjaee, senior
managing director of Canadian fixed income at Manulife Asset
    A stabilization in the price of oil, a major export for
Canada, has also helped the loonie gain ground. The currency has
been highly sensitive to the drop in world oil prices over the
past year. 
    The Canadian dollar is still down 10.5 percent against the
greenback in the year to date, hurt by cheap oil and two rate
cuts from the Bank of Canada.
    The Canadian dollar ended the North American
trading session at C$1.2847 to the greenback, or 77.84 U.S.
cents, firmer than the Bank of Canada's official close on
Wednesday of C$1.2922, or 77.39 U.S. cents.
    The currency's strongest level of the session was C$1.2832,
its highest level seen July 15. It had traded above C$1.30 for
most of October, which had been a significant resistance level. 
    "If we can close this week around the levels we're seeing
today, beyond that C$1.2880, it definitely will help it to gain
more traction," said Ken Wills, CanadianForex's Head of
Corporate Foreign Exchange North America.
    But he noted that the move has more to do with U.S. dollar
weakness than Canadian fundamentals.
    The Canadian economy probably rebounded from a mild
recession last quarter, helped by solid U.S. demand for its
exports, according to a Reuters poll, but the recovery was not
seen as strong enough to warrant an interest rate rise until
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 3
Canadian cents to yield 0.537 percent and the benchmark 10-year
 falling 44 Canadian cents to yield 1.442 percent.
    The Canada-U.S. two-year bond spread was -6.40 basis points,
while the 10-year spread was -57.6 basis points.

 (Reporting by Leah Schnurr, editing by G Crosse)