CANADA FX DEBT-C$ weakens on monetary policy divergence prospects

(Adds analyst quotes and details on Bank of Canada interest
rate expectations and NAFTA and updates prices)
    * Canadian dollar ends at C$1.3496, or 74.10 U.S. cents
    * Bond prices lower across the yield curve
    * 10-year yield touches its highest intraday since December

    By Fergal Smith
    TORONTO, Nov 23 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Wednesday as U.S. data
reinforced expectations of Federal Reserve interest rate hikes
and market players looked past an upcoming meeting of major oil
    The loonie hit its weakest in eight months last week at
C$1.3589, but recovered some ground in recent days as oil
rallied on hopes of a supply cut at an upcoming meeting of the
Organization of the Petroleum Exporting Countries.
    Divergence between U.S. and Canadian monetary policy and
economic growth will drive the loonie to fresh lows once the
OPEC meeting is past, said Jimmy Jean, senior economist at
    "Our forecast is for the Canadian dollar to close the year
at 1.3700 and depreciate even further in 2017," Jean added.
    The U.S. dollar and bond yields climbed as U.S. data
showed the economy is on track for steady growth.  
    Investors expect rate increases by the Fed next month and in
2017. In contrast, the Bank of Canada is expected to stand pat
until 2018, a Reuters poll shows. 
    Canada's 2-year yield fell 2 basis points further below its
U.S. equivalent to -45.9 basis points, its largest gap since
January, as U.S. Treasuries underperformed.   
    The Canadian dollar ended at C$1.3496 to the
greenback, or 74.10 U.S. cents, weaker than Tuesday's close of
C$1.3453, or 74.33 U.S. cents.
    The currency's strongest level of the session was C$1.3425,
while its weakest was C$1.3517.
    U.S. crude oil futures settled 7 cents lower at
$47.96 a barrel amid doubts that OPEC would agree a large enough
production cut to significantly reduce the global crude surplus
when it meets next week. 
    Oil is one of Canada's major exports.
    Labor market reforms could both improve the North American
Free Trade Agreement and help address U.S. concerns about
illegal immigration from Mexico, a senior Mexican official said.
    U.S. President-elect Donald Trump has vowed to tear up or
renegotiate NAFTA - a trade pact under which Mexico and Canada
send a large majority of their exports to the United States.
    Canadian government bond prices were lower across the yield
curve, with the two-year down 3 Canadian cents to
yield 0.672 percent and the benchmark 10-year 
falling 9 Canadian cents to yield 1.55 percent.
    The 10-year yield touched its highest intraday since
December at 1.614 percent. 
    Bond yields have been rising since the U.S. election as
investors bet that Trump will pursue policies that boost

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli and
Jonathan Oatis)