CANADA FX DEBT-C$ notches a 9-month high on higher oil prices, domestic growth

    * Canadian dollar at C$1.2991, or 76.98 U.S. cents
    * Loonie touches its strongest since Sept. 9 at C$1.2947
    * Bond prices lower across the yield curve
    * 2-year spread vs Treasuries hits its narrowest in 7-months

    By Fergal Smith
    TORONTO, June 30 (Reuters) - The Canadian dollar
strengthened on Friday to a 9-month high against its U.S.
counterpart, boosted by higher oil prices and domestic growth
which supported the Bank of Canada's more hawkish stance.
     Canada's economy expanded by 0.2 percent in April after a
0.5 percent increase in March, Statistics Canada said. The gain
matched analysts' estimates.             
    It leaves the economy on track to grow at a 2.5 percent pace
in the second quarter, which is "more than enough to justify the
recent change in tone from the Bank of Canada," Avery Shenfeld,
chief economist at CIBC Capital Markets said in a research note.
    Hawkish comments earlier this week from Bank of Canada
Governor Stephen Poloz have raised expectations for an interest
rate hike as early as next month.             
    Chances of a Bank of Canada rate hike in July have increased
to one-in-two from just 20 percent after subdued inflation data
last week, data from the overnight index swaps market shows
    Oil prices climbed for a seventh straight session in their
longest bull run since April but were still set for the worst
first-half performance since 1998.             
    U.S. crude        prices were up 0.87 percent at $45.32 a
    At 9:14 a.m. ET (1314 GMT), the Canadian dollar          was
trading at C$1.2991 to the greenback, or 76.98 U.S. cents, up
0.1 percent.
    The currency's weakest level of the session was C$1.3011,
while it touched its strongest since Sept. 9 at C$1.2947.
    Investors will digest the Bank of Canada's business outlook
report, due for release at 10:30 a.m. ET (1430 GMT). An
improvement in business investment or sales expectations would
underscore the central bank's recent shift to a more hawkish
    Canadian government bond prices were lower across a steeper
yield curve. Global bond markets have been pressured this week
by the likelihood that central banks will become less
    The two-year            price dipped 0.5 Canadian cent to
yield 1.083 percent and the 10-year             declined 26
Canadian cents to yield 1.737 percent.
    The gap between the 2-year yield and its U.S. equivalent
narrowed by 1 basis point to a spread of -28.3 basis points, its
narrowest since Nov. 10, as Canadian bonds underperformed.

 (Reporting by Fergal Smith)