CANADA FX DEBT-C$ reverses losses alongside upturn in oil prices

* Canadian dollar at C$1.1248 or 88.90 U.S. cents
    * Bond yields recover from lows to turn higher

 (Recasts with currency's turnaround, adds quotes, updates
    By Leah Schnurr
    TORONTO, Oct 16 (Reuters) - The Canadian dollar squeaked out
a gain against the greenback on Thursday, recovering from an
early drop as oil prices rose and markets stabilized with
traders betting that policymakers are still ready to bolster the
world economy.
    The loonie had neared a five-year low in early trading as
worries about global economic growth continued to pull financial
markets sharply lower. 
     But the release of upbeat U.S. economic data helped to
soothe nerves and the Canadian currency later turned around
alongside oil prices. Crude was boosted by technical
trading ahead of options expiry and after data showed tight U.S.
gasoline supplies.
   Markets were further encouraged after a top U.S. Federal
Reserve policymaker said the Fed should keep buying bonds for
longer than planned due to volatile markets and falling
inflation expectations. 
    The Fed's asset-purchase program is due to wrap up later
this month, and speculation about how long it will be before the
U.S. central bank starts to raise interest rates has contributed
to the recent market turmoil.
    "That was a bit of a surprise and highlights that the Fed
still has ways to delay some of their policy plans," said   
Camilla Sutton, chief currency strategist at Scotiabank in
    "Policymakers are going to be very cautious when they look
to raising interest rates or when they look to shifting policy."
    The Canadian dollar ended the North American
session at C$1.1248 to the greenback, or 88.90 U.S. cents,
firmer than Wednesday's close of C$1.1258, or 88.83 U.S. cents.
    The currency has lost about 6 percent since July as the
greenback has rallied, but losses had accelerated this week in
the midst of the global market rout, particularly in oil, a
major Canadian export.
    Recent weak U.S. and Chinese economic data, along with
anxiety about the euro zone's stalling recovery, has heightened
concerns over weaker than anticipated global growth. As a major
trading partner of the United States, Canada's economic hopes
lie in an acceleration of growth south of the border.
    "If the U.S. can continue to perform reasonably well, and
that's a big if, then Canada can hide under the shadow that the
U.S. provides, so hopefully that will be the case," said David
Tulk, chief Canada macro strategist at TD Securities in Toronto.
    "But if the U.S. is hit from confidence or any other global
themes that stall the U.S. recovery, Canada will continue to
    Canadian government bond yields also turned around, with the
price of the benchmark 10-year down 11 cents to
yield 1.929 after yields earlier hit their lowest level since
May 2013. The two-year was down 1-1/2 Canadian cents
to yield 0.925 percent.

 (Editing by Peter Galloway)