CANADA FX DEBT-C$ strengthens as rate hike bets climb on trade data

    * Canadian dollar at C$1.2988, or 76.99 U.S. cents
    * Canada's exports rise 4.1 percent in June
    * Bond prices mixed across a flatter yield curve
    * Canada-U.S. 2-year spread hits narrowest in two months

    By Fergal Smith
    TORONTO, Aug 3 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Friday after domestic data
showing a record high for exports boosted bets for another Bank
of Canada interest rate hike as soon as next month.
    Canadian exports shrugged off the effects of U.S. metals
tariffs to rise 4.1 percent in June, cutting the country's trade
deficit to its lowest in 17 months at C$626 million, Statistics
Canada data indicated.             
    "Bullish for the C$, bearish for fixed income, as the data
will have markets adding a bit of weight to the odds for a
September hike," said Avery Shenfeld, chief economist at CIBC
Capital Markets.
    The Bank of Canada hiked its benchmark interest rate by 25
basis points in July to 1.50 percent, its fourth increase in a
year. Chances of another increase in September nudged up to more
than 30 percent from about 25 percent before the trade data, the
overnight index swaps market showed.           
    At 9:23 a.m. EDT (1323 GMT), the Canadian dollar         
was trading 0.3 percent higher at C$1.2988 to the greenback, or
76.99 U.S. cents. On Wednesday, the currency touched its
strongest in nearly seven weeks at C$1.2975.    
     Gains for the loonie on Friday came as U.S. job growth
slowed more than expected in July and China announced
retaliatory tariffs on $60 billion worth of U.S. goods.             
    Canada, which has its own trade feud with the United States,
runs a current account deficit, so its economy could be hurt if
the flow of trade or capital slows.
    The price of oil, one of Canada's major exports, steadied as
the market focused on bearish longer term factors. U.S. crude
       prices were down 0.2 percent at $68.86 a barrel.
    Canadian government bond prices were mixed across a flatter
yield curve, with the two-year            down 1.5 Canadian
cents to yield 2.102 percent and the 10-year             rising
5 Canadian cents to yield 2.361 percent.
    The gap between Canada's 2-year yield and its U.S.
equivalent narrowed by nearly 1 basis point to a spread of 56.4
basis points in favor of the U.S. bond, its narrowest since June

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli)