CANADA FX DEBT-C$ recovers as rate hike prospects offset NAFTA risks

 (Adds analyst quotes, details on market activity; updates
    * Canadian dollar at C$1.2527, or 79.83 U.S. cents
    * Loonie touches its weakest since Dec. 20 at C$1.2590
    * Oil settles 0.4 percent higher at $63.80/barrel
    * Bond prices mixed across the yield curve

    By Fergal Smith
    TORONTO, Jan 11 (Reuters) - The Canadian dollar rose against
a broadly weaker greenback on Thursday, rebounding from a nearly
two-week low earlier in the session as prospects of a Bank of
Canada interest rate hike next week offset worries about a U.S.
withdrawal from NAFTA.
    At 4 p.m. EST (2100 GMT), the Canadian dollar          was
trading at C$1.2527 to the greenback, or 79.83 U.S. cents, up
0.2 percent. It touched its weakest intraday since Dec. 29 at
    The United States must be taken seriously when it says it
might walk away from the North American Free Trade Agreement,
Canada's foreign minister said, a day after government sources
said Ottawa was increasingly convinced U.S. President Donald
Trump would pull the plug on the trade pact.             
    "A series of reports and denials on the future of NAFTA has
the market off balance at the moment," said Adam Button,
currency analyst at ForexLive in Montreal. "Traders are weighing
the NAFTA news against the likelihood of a Bank of Canada rate
hike next week."
    Chances of a rate hike on Jan. 17 steadied around 70 percent
after having fallen on Wednesday, data from the overnight index
swaps market showed. They reached nearly 90 percent on Monday,
boosted by recent much stronger-than-expected domestic jobs
    "In the bigger picture the U.S. dollar is weak today and
that has taken a bit of pressure off the Canadian dollar,"
Button said.
    The U.S. dollar        fell against a basket of major
currencies after the European Central Bank said it could revisit
its policy message in early 2018, boosting the euro.
    The price of oil, one of Canada's major exports, reached its
highest in three years on signs of tightening supply in the
United States.             
    U.S. crude oil futures        settled 0.4 percent higher at
$63.80 a barrel.    
    Canadian new home prices edged up 0.1 percent in November
from October, boosted by gains in Ottawa, data from Statistics
Canada showed. Prices were unchanged in a number of other
markets, including the major city of Toronto.             
    Canadian government bond prices were mixed across the yield
curve, with the two-year            up 1.1 Canadian cents to
yield 1.758 percent and the 10-year             falling 2
Canadian cents to yield 2.166 percent.
    On Wednesday, the 10-year yield reached its highest intraday
since September 2014 at 2.231 percent.

 (Reporting by Fergal Smith; Editing by Phil Berlowitz)