CANADA FX DEBT-C$ pares this week's gains as oil falls, greenback rises

    * Canadian dollar at C$1.3275, or 75.33 U.S. cents
    * Bond prices lower across a flatter yield curve
    * 2-year spread vs U.S. Treasuries narrowest in 3-1/2 months

    TORONTO, June 15 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Thursday, paring some of this
week's gains as lower oil prices and broader strength in the
greenback offset stronger-than-expected domestic manufacturing
    Canadian manufacturing sales rose more than expected to a
record level in April as sales of petroleum and coal products
rebounded after two months of declines, data from Statistics
Canada showed. The 1.1 percent advance topped economists'
forecast for a gain of 0.7 percent.               
    Prices of oil dropped to six-week lows, under pressure from
high global inventories and doubts about OPEC's ability to
implement agreed production cuts.      
    U.S. crude        prices were down 0.56 percent at $44.48 a
    The U.S. dollar        rose against a basket of major
currencies, supported by the Federal Reserve's decision on
Wednesday to boost interest rates further.             
    At 9:25 a.m. ET (1325 GMT), the Canadian dollar          was
trading at C$1.3275 to the greenback, or 75.33 U.S. cents, down
0.3 percent.
    The currency traded in a range of C$1.3226 to C$1.3293.
    On Wednesday, the loonie touched its strongest in 3-1/2
months at C$1.3165. It has gained 1.5 percent this week, helped
by signals from the Bank of Canada that higher interest rates
lie ahead.
    Chances of a rate hike this year have surged to more than 90
percent from less than one-in-four before stronger-than-expected
jobs data on Friday.           
    The central bank, which had long said interest rates are too
blunt a tool to tackle the country's housing market, may have
finally decided to act and at least limit its role in fueling a
potential bubble with low interest rates.             
    Resales of Canadian homes dropped 6.2 percent in May from
April as Toronto sales plunged 25.3 percent in the month as new
housing policy changes sideswiped demand and new listings rose
again, the Canadian Real Estate Association said.             
    Canadian government bond prices were lower across a flatter
yield curve, with the two-year            down 9 Canadian cents
to yield 0.926 percent and the 10-year             falling 20
Canadian cents to yield 1.513 percent.
    The gap between the 2-year yield and its U.S. equivalent
narrowed by 3.1 basis points to a spread of -43.5 basis points,
its smallest since Feb. 27.

 (Reporting by Fergal Smith; Editing by Bernadette Baum)