CANADA FX DEBT-C$ turns weaker as dour Bank of Canada offsets oil surge

(Updates prices)
    * Canadian dollar ends at C$1.3127, or 76.18 U.S. cents
    * Loonie touches its strongest since Sept. 22 at C$1.3005
    * Bond prices mixed across yield curve

    By Fergal Smith and Alastair Sharp
    TORONTO, Oct 19 (Reuters) - The Canadian dollar fell on
Wednesday after Bank of Canada policymakers said they had
considered adding more monetary stimulus and that export
weakness could be harder to turn around than they had thought,
cancelling out earlier oil-powered gains.
    The currency had strengthened to a nearly four-week high
after a shock drop in U.S. crude inventories led to a surge in
prices for oil, a major Canadian export. 
    But those gains were erased as the central bank said it
expects a permanent shortfall in exports to shave 0.6 percentage
point off growth by the end of 2018. 
    "They're getting pretty negative about the export picture,
especially the non-energy export picture," said Michael Goshko,
corporate risk manager at Western Union Business Solutions.
    "Then the icing on the cake was when they said that the
governing council actively discussed the possibility of adding
more monetary stimulus," he said.
    The central bank cut its growth forecast, citing a looming
slowdown in housing and the weaker export outlook, but held its
overnight lending rate at 0.5 percent, where it has been since
July 2015.
    The Canadian dollar ended at C$1.3127 to the
greenback, or 76.18 U.S. cents, slightly weaker than Tuesday's
close of C$1.3119, or 76.23 U.S. cents.
    It touched its strongest intraday level since Sept. 22 at
C$1.3005, with U.S. crude hitting 15-month highs after
government data showed a surprisingly large drop in domestic
inventories for a sixth week out of seven.
    U.S. crude prices settled $1.31 higher at $51.60 a
    Canadian government bond prices were mixed across the yield
curve, with the two-year up 5 Canadian cents to yield
0.565 percent and the benchmark 10-year rising 3
Canadian cents to yield 1.191 percent.
    The curve steepened as the spread between the two-year and
10-year yields widened by 2.1 basis points to 62.6 basis points,
indicating outperformance for shorter-dated bonds.    
    The premier of the Belgian region that is the main
impediment to a planned EU-Canada free trade agreement sought to
postpone a summit next week to sign the deal and taking a few
more months to fix outstanding issues. 
    A Canadian government advisory group will this week
recommend the creation of an infrastructure bank and urge
increased immigration to stoke economic growth, the Globe and
Mail reported. 

 (Reporting by Fergal Smith and Alastair Sharp; Editing by
Meredith Mazzilli and Leslie Adler)