CANADA FX DEBT-C$ weakens on lower oil prices, pares losses after Fed decision

(Updates prices to close)
    * Canadian dollar at C$1.3785, or 72.54 U.S. cents
    * Bond prices lower across the maturity curve

    By Fergal Smith
    TORONTO, Dec 16 (Reuters) - The Canadian dollar weakened to
a new 11-1/2-year low against its U.S. counterpart on Wednesday
as oil prices fell, before paring some losses in volatile trade
after the U.S. Federal Reserve raised rates for the first time
in more than nine years.
    Oil prices headed back toward 11-year lows, pressured by
U.S. government data showing a huge build in crude inventories,
while the greenback was slightly stronger against a basket of
currencies after the Fed news.  
    U.S. crude prices settled down 4.9 percent at $35.52
a barrel, while Brent crude lost 3.3 percent to $37.18.
    The U.S. dollar rallied initially following "a somewhat more
hawkish Fed than the markets had anticipated," according to
Derek Holt, vice president of economics at Scotiabank.
    The Canadian dollar settled at C$1.3785 to the
greenback, or 72.54 U.S. cents, weaker than Tuesday's close of
C$1.3738, or 72.79 U.S. cents.
    The currency's strongest level of the session was C$1.3729,
while its weakest level was C$1.3848, a fresh 11-1/2-year low.
    Its initial reaction on the Fed announcement was to weaken,
but it pared losses after failing to breach the session low.
    The Fed made clear the rate hike was a tentative beginning
to a "gradual" tightening cycle, and that in deciding its next
move it would put a premium on monitoring inflation, which
remains mired below target. 
    On Tuesday, weak manufacturing data weighed on the domestic
outlook, and Bank of Canada Governor Stephen Poloz signaled
clearly that markets should not expect him to match Fed rate
    Canadian government bond prices fell across the maturity
curve, with the two-year price down 7 Canadian cents
to yield 0.552 percent and the benchmark 10-year 
losing 20 Canadian cents to yield 1.511 percent.
    Foreign investors bought a net C$22.08 billion of Canadian
securities in October, mostly in bonds. The net total is up from
C$3.35 billion in September, Statistics Canada said.
    Ahead of the Fed hike, Canadian Prime Minister Justin
Trudeau told reporters that "having the United States economy
pick up steam is ultimately going to be good for Canada".

 (Additional reporting by Alastair Sharp; Editing by Lisa Von
Ahn and Lisa Shumaker)