CANADA FX DEBT-C$ firms as manufacturing data supports rate hike view

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    * Canadian dollar at C$1.3138, or 76.12 U.S. cents
    * Price of U.S. oil rises 0.3 percent
    * Bond prices higher across a flatter yield curve
    * 10-year yield posts a two-week high intraday at 2.204

    By Fergal Smith
    TORONTO, July 3 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Tuesday as oil prices rose to
3-1/2-year highs and domestic manufacturing data supported the
view that the Bank of Canada will hike interest rates next week.
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading 0.4 percent higher at C$1.3138 to the greenback, or
76.12 U.S. cents. The currency traded in a range of C$1.3133 to
    Growth in the Canadian manufacturing sector accelerated in
June to its fastest pace in more than seven years, data showed.
The IHS Markit Canada Manufacturing Purchasing Managers' Index
rose to a seasonally adjusted 57.1 last month from 56.2 in May.
    Strengthening of domestic data has come despite slow-moving
talks to revamp the North American Free Trade Agreement and a
trade dispute with the United States.    
     The White House said on Monday that Canada's decision to
enact tariffs on C$16.6 billion worth of American goods in
retaliation for U.S. tariffs on imports of Canadian steel and
aluminum would not help its economy.                        
    "We have been climbing the wall of worry since April and the
manufacturing sector in Canada is still posting multi-year
strength levels," said Michael Goshko, corporate risk manager at
Western Union Business Solutions. "The Bank of Canada has got to
pay attention to something like that."
    Perceived chances of an interest rate hike at the July 11
announcement have jumped to nearly 80 percent from about 50
percent before hawkish comments by Bank of Canada Governor
Stephen Poloz at a news conference last week.             
    On Friday, when domestic data showed a surprise expansion of
the domestic economy in April and business optimism, the loonie
touched its strongest in two weeks at C$1.3131.
    U.S. crude oil futures        settled 0.3 percent higher at
$74.14 a barrel. Oil is one of Canada's major exports.       
    The U.S. dollar        fell nearly 0.5 percent against a
basket of major currencies ahead of the July 4 Independence Day
holiday, while stocks on Wall Street were pressured by declines
for technology stocks.                         
    Canadian government bond prices were higher across a flatter
yield curve, with the two-year            up 2.5 Canadian cents
to yield 1.898 percent and the 10-year             rising 22
Canadian cents to yield 2.142 percent.
    The 10-year yield touched its highest intraday level since
June 18 at 2.204 percent.
    Canada's employment report for June and trade data for May
are due out on Friday.

 (Reporting by Fergal Smith; Editing by Bernadette Baum and
James Dalgleish)