CANADA FX DEBT-C$ posts 2-week high on rate hike bets, but falls for qtr

    * Canadian dollar at C$1.3138, or 76.12 U.S. cents
    * Canadian GDP rises 0.1 percent in April
    * Loonie hits strongest level since June 15 at C$1.3131
    * Bond prices lower across much of a flatter yield curve

    By Fergal Smith
    TORONTO, June 29 (Reuters) - The Canadian dollar hit a
two-week high against its U.S. counterpart on Friday as oil
prices rose and after a surprise expansion of the domestic
economy in April raised expectations for a Bank of Canada
interest rate hike next month.
    Canada's economy shrugged off the effects of bad weather to
post growth of 0.1 percent in April, and business optimism rose
to near record levels in the second quarter.             
    "Good enough data, the bank should hike," said Greg
Anderson, global head of foreign exchange strategy in New York
at BMO Capital Markets.
    Chances of an interest rate hike at the central bank's July
11 announcement jumped to about 80 percent from 67 percent
before the data for gross domestic product, the overnight index
swaps market indicated.               
    The price of oil, one of Canada's major exports, rose to a
3-1/2-year high as U.S. sanctions against Iran threatened to
remove a substantial volume of crude oil from world markets at a
time of rising global demand.             
    U.S. crude oil futures        settled nearly 1 percent
higher at $74.15 a barrel.
    At 5 p.m. EDT (2100 GMT), the Canadian dollar          was
trading 0.9 percent higher at C$1.3138 to the greenback, or
76.12 U.S. cents. The currency touched its strongest level since
June 15 at C$1.3131.
    Still, the loonie fell 1.8 percent for the second quarter,
pressured by a trade dispute between Canada and the United
States and slow-moving talks to revamp the North American Free
Trade Agreement.
    Speculators have raised bearish bets on the Canadian dollar,
data from the U.S. Commodity Futures Trading Commission and
Reuters calculations showed. As of June 26, net short positions
jumped to 32,799 contracts from 14,014 a week earlier.
    Canadian government bond prices were lower across much of a
flatter yield curve, with the 10-year             falling 29
Canadian cents to yield 2.167 percent. The 10-year yield touched
its highest intraday level since June 20 at 2.173 percent.

 (Reporting by Fergal Smith; Editing by Bernadette Baum and
Leslie Adler)