CANADA FX DEBT-C$ climbs to 5-week high as bets rise for 2019 rate hike

 (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)