(Adds economist quotes and details throughout; updates prices) * Canadian dollar gains 0.3 percent against greenback * Price of U.S. oil rises 2.4 percent * Loonie touches its strongest since Dec. 4 at 1.3180 * Canadian housing starts fall to 213,419 units in December * Canada-U.S. 2-year spread narrows by 1.5 basis points By Fergal Smith TORONTO, Jan 9 (Reuters) - The Canadian dollar strengthened to a five-week high against the greenback on Wednesday, boosted by hopes of a trade deal between the United States and China and increased expectations of a Bank of Canada interest rate hike this year. The central bank, which hiked three times in 2018, held interest rates steady as expected and cut its near-term growth forecasts to reflect the impact of lower crude prices. But it said the slowdown should be temporary and predicted the economy would post above-potential growth in 2020. "I think it points to how the front-end of the Canada curve is too rich," said Derek Holt, vice president of capital markets at Scotiabank. "The market went too far in terms of pricing out rate hikes further on." Chances of a rate hike by December rose to more than 40 percent from about 30 percent before the policy announcement, data from the overnight index swaps market showed. The Canadian dollar is expected to rally in 2019, recovering some of last year's decline, as the Bank of Canada surprises speculators who are betting it has already finished raising interest rates, a Reuters poll showed. Global stocks and the price of oil climbed after talks between the world's two largest economies raised hopes an all-out trade war could be averted. U.S. crude oil futures were up 2.4 percent at $50.99 a barrel. Canada is a major exporter of commodities, so its economy could benefit from an improvement in the global trade outlook. At 10:54 a.m. (1554 GMT), the Canadian dollar was trading 0.3 percent higher at 1.3237 to the greenback, or 75.55 U.S. cents. The currency touched its strongest intraday level since Dec. 4 at 1.3180. Gains for the loonie came as data showed stronger-than-expected Canadian housing starts in December. The seasonally adjusted annualized rate of housing starts fell to 213,419 units from an upwardly revised 224,349 units in November, the Canadian Mortgage and Housing Corporation (CMHC) said. Economists had expected starts to fall to 205,000 units. Canadian government bond prices were higher across a flatter yield curve, with the two-year up 1 Canadian cent to yield 1.895 percent and the 10-year rising 15 Canadian cents to yield 1.951 percent. The gap between Canada's 2-year yield and its U.S. equivalent narrowed by 1.5 basis points to a spread of 66.8 basis points in favor of the U.S. bond. (Reporting by Fergal Smith; Editing by Bernadette Baum and Diane Craft)
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