CANADA FX DEBT-C$ rises from 7-week low as likely Iran sanctions boost oil

    * Canadian dollar at C$1.2886, or 77.60 U.S. cents
    * Price of oil rises 2.5 percent
    * Bond prices lower across the yield curve

    TORONTO, May 9 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Wednesday, rebounding from a
nearly seven-week low the day before, as the price of oil surged
after U.S. President Donald Trump abandoned a nuclear deal with
    Trump announced on Tuesday the "highest level" of sanctions
against the OPEC member, raising the risk of conflict in the
Middle East and casting uncertainty over the supply of oil, one
of Canada's major exports.             
    U.S. crude        prices were up 2.5 percent at $70.75 a
    At 9:15 a.m. EDT (1315 GMT), the Canadian dollar         
was trading 0.5 percent higher at C$1.2886 to the greenback, or
77.60 U.S. cents.
    The currency traded in a range of C$1.2870 to C$1.2975. On
Tuesday, it hit its weakest since March 21 at C$1.2998.
    Gains for the loonie came as Mexico launched a
counterproposal to U.S. demands to toughen automotive industry
content rules under the North American Free Trade Agreement
    Canada sends 75 percent of its exports to the United States.
Its economy could benefit if a deal to revamp NAFTA is reached. 
    The U.S. dollar        pared some recent gains as data
showed a smaller-than-expected increase in U.S. producer prices
in April.             
    The value of Canadian building permits rose 3.1 percent in
March, more than economists' forecasts for a gain of 2.0
percent, on increased plans to build apartment buildings in the
provinces of Quebec and British Columbia, data from Statistics
Canada showed.             
    Canadian government bond prices were lower across the yield
curve in sympathy with U.S. bonds ahead of a U.S. 10-year
Treasury note auction.
    The Canadian 10-year             declined 27 Canadian cents
to yield 2.384 percent. It touched its highest since Feb. 15 at
2.394 percent.    
    Canada's jobs report for April is due on Friday.

 (Reporting by Fergal Smith; editing by Jonathan Oatis)