CANADA FX DEBT-C$ retreats as oil price slumps to 7-month low

    * Canadian dollar at C$1.3263, or 75.40 U.S. cents
    * U.S. crude        prices fall 2.56 percent
    * Bond prices higher across the yield curve

    By Fergal Smith
    TORONTO, June 20 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Tuesday, erasing recent gains as
a drop in oil prices offset stronger-than-expected domestic
wholesale trade data.
    Prices of oil, one of Canada's major exports, fell to
seven-month lows on news of boosted supply by several key
producers.       U.S. crude        prices shed 2.56 percent to
$43.07 a barrel. 
    Wholesale trade rose 1.0 percent in April from March, led by
higher sales in the machinery, equipment and supplies subsector,
Statistics Canada said. Analysts surveyed by Reuters had
forecast a 0.5 percent increase.             
    "Another day, another positive for the Canadian outlook ...
April (gross domestic product) is shaping up to remain in
positive territory after an extremely strong March," said Nick
Exarhos, economist at CIBC Capital Markets in a research note.
    At 9:03 a.m. ET (1303 GMT), the Canadian dollar          was
trading at C$1.3263 against the greenback, or 75.40 U.S. cents,
down 0.3 percent.
    The loonie traded in a range of C$1.3205 to C$1.3284. Last
week, it touched its strongest in 3-1/2 months at C$1.3165.
    The strength of recent data has triggered a more hawkish
stance from the Bank of Canada. The central bank's top two
officials said last week that rate cuts put in place in 2015 had
largely done their work, and the bank would assess whether rates
need to be kept at near-record lows.             
    Chances of a rate hike as early as next month have climbed
to 35 percent, from nearly zero earlier this month, while a rate
hike has been fully priced in by December, data from the
overnight index swaps market shows.           
    The U.S. dollar        reached a three-week high against a
basket of major currencies, boosted by comments from the U.S.
Federal Reserve bolstering expectations that it would keep
raising interest rates.             
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 2.5 Canadian cents to
yield 0.929 percent and the 10-year             rising 9
Canadian cents to yield 1.532 percent.
    Canada's 2-year yield fell 1.9 basis points further below
its U.S. equivalent to a spread of -44.0 basis points. On Monday
it had touched its smallest gap in nearly four months at -42.1
basis points.
    Canadian retail sales data for April is due out on Thursday,
while inflation data for May is due on Friday.         

 (Reporting by Fergal Smith; Editing by Bernadette Baum)