CANADA FX DEBT-C$ hits a 5-week low on soft data, lower oil prices

* Canadian dollar at C$1.3542, or 73.84 U.S. cents
    * Loonie touches its weakest since Nov. 18 at C$1.3557
    * Bond prices higher across the yield curve

    By Fergal Smith
    TORONTO, Dec 23 (Reuters) - The Canadian dollar weakened to
a five-week low against its U.S. counterpart on Friday,
pressured by lower oil prices and data that showed an unexpected
contraction in Canada's economy at the start of the fourth
    The country's gross domestic product was down 0.3 percent in
October, falling below economists' expectations for no growth,
due to widespread weakness in the manufacturing sector and a
decline in oil and gas extraction, data from Statistics Canada
showed. September was revised slightly higher to growth of 0.4
percent from an originally reported 0.3 percent.   
    "The uneven pace of the Canadian economic recovery after the
oil shock gives (the Bank of Canada) reason to continue on with
(its) dovish message," said Nick Exarhos, economist at CIBC
Capital Markets.
    Expected policy divergence between the Bank of Canada and
the U.S. Federal Reserve, which last week raised interest rates
and signaled a faster pace of increases in 2017, has widened the
spread between Canada's bond yields and U.S. Treasuries, and has
weighed on the loonie.
    Canada's 2-year yield fell 3.3 basis points further below
U.S. Treasuries to a spread of -40 basis points. Strategists
expect the spread to widen to as much as -80 basis points by the
end of 2017. 
    Oil, one of Canada's major exports, fell as a stronger U.S.
dollar weighed on commodities and as higher Libyan output
threatened to counter some of the supply cuts planned by OPEC
and other producers. 
    U.S. crude prices were down 0.60 percent at $52.63 a
    At 9:46 a.m. EST (1446 GMT), the Canadian dollar 
was trading at C$1.3542 to the greenback, or 73.84 U.S. cents,
weaker than Thursday's close of C$1.3497, or 74.09 U.S
    The currency's strongest level of the session was C$1.3480,
while it touched its weakest since Nov. 18 at C$1.3557.
    Canadian government bond prices were higher across the yield
curve, with the two-year up 5 Canadian cents to yield
0.802 percent and the 10-year rising 30 Canadian
cents to yield 1.785 percent.

 (Reporting by Fergal Smith)