CANADA FX DEBT-C$ strengthens as oil rebounds, domestic economy expands

* Canadian dollar at C$1.3373, or 74.78 U.S. cents
    * Bond prices lower across steeper maturity curve

    By Fergal Smith
    TORONTO, Nov 1 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Tuesday as oil prices rebounded
and domestic data showed the economy expanded for a third
straight month.
    Canada's economy grew 0.2 percent in August from July on
strength in mining, quarrying and oil and gas extraction. The
gain was in line with a Reuters poll of economists. 
    "It's a bit weaker than the headline would suggest," but the
Bank of Canada will take the data with "cautious optimism," said
Derek Holt, vice president and head of capital markets economics
at Scotiabank.
    The implied probability of a Bank of Canada interest rate
cut by mid-2017 dipped slightly to 21 percent from 25 percent
before the data, overnight index swaps data showed.
    Bank of Canada Governor Stephen Poloz will deliver a speech
on inflation targets later Tuesday morning. Investors will look
for further insight as to how Poloz views the future path of
monetary policy after the central bank held rates steady in
October but acknowledged it had considered cutting again.
    Oil rose after its largest one-day slide in more than five
weeks. U.S. crude prices were up 0.90 percent at $47.28 a
    At 9:42 a.m. EDT (1342 GMT), the Canadian dollar 
was trading at C$1.3373 to the greenback, or 74.78 U.S. cents,
stronger than Monday's close of C$1.3411, or 74.57 U.S. cents.
    The currency's strongest level of the session was C$1.3353,
while its weakest was C$1.3427.
    The loonie fell 2.2 percent in October and touched its
weakest level in seven months at C$1.3434 on Friday.
    Still, the Canadian dollar will strengthen over the coming
year as higher oil prices offset higher interest rates from the
U.S. Federal Reserve and a more dovish stance from the Bank of
Canada, a Reuters poll found.     
    The Canadian government will update its fiscal and economic
position later on Tuesday, providing new estimates for its
budget deficit and for economic growth.
    Canadian government bond prices were lower across the yield
curve in sympathy with U.S. Treasuries. The two-year 
fell 3 Canadian cents to yield 0.568 percent and the benchmark
10-year declined 44 Canadian cents to yield 1.244
    The curve steepened as the spread between the 2-year and
10-year yields widened by 3.3 basis points to 67.6 basis points,
its largest gap since June 8. That indicated underperformance
for longer-dated maturities.

 (Reporting by Fergal Smith; Editing by Paul Simao)