CANADA FX DEBT-Loonie weakens as Fed inflation view boosts greenback

 (Adds strategist quotes and details throughout, updates prices)
    * Canadian dollar falls 0.4% against the greenback
    * Price of U.S. oil decreases 0.5%
    * Canadian factory activity shrinks for first time in three
    * Canada-U.S. 2-year spread widens by 3 basis points

    By Fergal Smith
    TORONTO, May 1 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Wednesday, pulling back from an
earlier eight-day high as oil prices fell and the Federal
Reserve tempered expectations for an interest rate cut this
    Federal Reserve Chairman Jerome Powell said a decline in
inflation this year could be due to transitory factors, after
the U.S. central bank's meeting statement struck a cautious tone
on inflation.             
    "Anybody who had dreams of the Fed cutting rates or anything
else, that's been put to bed," said Colin Cieszynski, chief
market strategist at SIA Wealth Management.
    "People are recognizing the U.S. economy is doing pretty
well, particularly relative to other countries, and their dollar
is starting to go up and that's pushing ours down," Cieszynski
    The U.S. dollar        rallied against a basket of major
currencies, while the price of oil, one of Canada's major
exports, declined after U.S. crude inventories in the United
States soared more than expected to their highest since
September 2017.             
    U.S. crude oil futures        settled 0.5% lower at $63.60 a
    At 3:53 p.m. (1953 GMT), the Canadian dollar          was
trading 0.4% lower at 1.3439 to the greenback, or 74.41 U.S.
cents. The currency's weakest intraday level was 1.3461, while
it touched its strongest since April 23 at 1.3378.
    The decline for the loonie came as domestic data for April
showed that auto sales dropped 3.5 percent and that factory
activity contracted for the first time in more than three years.
    Canada's central bank is buying time for the economy to exit
a soft patch without the aid of lower interest rates, economists
say, by forecasting growth so weak it would take a surprise blow
to activity for the economy to undershoot its estimates.
    Canadian government bond prices were mixed across a flatter
yield curve in sympathy with U.S. Treasuries. The two-year
           fell 2.5 Canadian cents to yield 1.576% and the
benchmark 10-year             was up 2 Canadian cents to yield
    The gap between the 2-year yield and its U.S. equivalent
widened by 3 basis points to a spread of 73.4 basis points in
favor of the U.S. bond.

 (Reporting by Fergal Smith; editing by Jonathan Oatis)