CANADA FX DEBT-C$ strengthens to 7-week high against weaker greenback

* Canadian dollar at C$1.2859, or 77.77 U.S. cents
    * Bond prices mixed across the maturity curve

    TORONTO, Aug 16 (Reuters) - The Canadian dollar strengthened
to a seven-week high against its broadly weaker U.S. counterpart
on Tuesday as oil rose and domestic data showed a rebound in
factory sales.
    Canadian factory sales increased 0.8 percent in June from
May as sales of machinery and transportation equipment grew,
according to Statistics Canada data. Economists had expected a
0.7 percent increase after sales fell 1 percent in May.
    Oil rose to its highest in one month as the market rode
optimism over potential producer action to prop up the market.
U.S. crude prices were up 0.57 percent to $46 a barrel.
    The U.S. dollar fell against a basket of major
currencies, pressured by a moderation in underlying inflation
that could further diminish prospects of a Federal Reserve
interest rate increase this year. 
    At 9:28 a.m. EDT (1328 GMT), the Canadian dollar 
was trading at C$1.2859 to the greenback, or 77.77 U.S. cents,
stronger from Monday's close of C$1.2917, or 77.42 U.S. cents.
    The currency's weakest level of the session was C$1.2933,
while it touched its strongest since June 24 at C$1.2798.
    Canadian government bond prices were mixed across the
maturity curve, with the two-year bond down 1
Canadian cent to yield 0.554 percent and the benchmark 10-year
 rising 14 Canadian cents to yield 1.031 percent.
    The curve flattened as the spread between the two-year and
10-year yields narrowed by 2 basis points to 47.7 basis points,
indicating outperformance for longer-dated maturities. It was
the narrowest gap for the spread since June 2008.    
    Canadian retail sales data for June and inflation data for
July are awaited on Friday. 

 (Reporting by Fergal Smith; Editing by Bill Trott)