CANADA FX DEBT-C$ hits 8-month low as traders weigh gradual rate hikes

    * Canadian dollar at C$1.3051, or 76.62 U.S. cents
    * Bond prices higher across the maturity curve

 (Adds details, quotes, updates prices)
    By Leah Schnurr
    March 15 (Reuters) - The Canadian dollar fell against the
greenback on Thursday to its lowest level in more than eight
months as traders reassessed how many more times the Bank of
Canada was likely to raise interest rates this year.
    The loonie touched a session low of C$1.3068, its weakest
level since June 28, which was shortly before the central bank
began raising rates last July.
    The market has been absorbing comments from Bank of Canada
Governor Stephen Poloz on Tuesday that reinforced expectations
the central bank would lift rates gradually from here.
Policymakers have raised borrowing costs three times since July.
    Data showing home sales fell in February as tighter mortgage
rules introduced at the beginning of the year hit demand
underscored the narrative that the Bank of Canada would have to
proceed cautiously, said Andrew Kelvin, senior fixed-income
strategist at TD Securities.
    "Markets have moved to price in basically just two hikes now
by next January, which we think is fair," Kelvin said. 
    "We think markets had been too optimistic in terms of where
they were pricing the Bank of Canada earlier this year, just
given that the economy is so dependent on consumption."
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading down 0.7 percent at C$1.3051 to the greenback, or 76.62
U.S. cents.
    The U.S. dollar        rose against a basket of currencies
before what is expected to be the first rate hike of the year
from the U.S. Federal Reserve.        
    The C$1.30 level was an important resistance point for the
loonie to breach, which added momentum to the Canadian dollar's
decline, Kelvin said.
    The Bank of Canada has said it will be closely monitoring
how indebted consumers handle higher interest rates, as well as
how recent local government and regulatory changes affect the
housing market. 
    Markets see a nearly 80 percent likelihood the bank will
raise rates again in July.           
    In addition to the 6.5 percent decline in home resales in
February, separate data showed household debt as a share of
income remained near a record high in the fourth quarter.
    Market attention will turn to Friday's manufacturing sales
data, which will give some insight into how the economy fared at
the start of the year. Sales are forecast to have declined 0.8
    Canadian government bond prices were higher across the
maturity curve, with the two-year            up 3.5 Canadian
cents to yield 1.757 percent and the benchmark 10-year
            rising 15 Canadian cents to yield 2.142 percent.

 (Reporting by Leah Schnurr in Ottawa; Editing by Steve Orlofsky
and Peter Cooney)