CANADA FX DEBT-C$ rises despite weaker crude oil, drop in housing starts

* Canadian dollar at C$1.4095 or 70.95 U.S. cents
    * Bond prices lower across the maturity curve

    TORONTO, Jan 11 (Reuters) - The Canadian dollar rallied
against its U.S. counterpart on Monday despite weakening crude
oil prices and a sharp drop in housing starts, as stabilization
in U.S. and European stocks helped support risk-sensitive
commodity currencies.
    The loonie, as Canada's currency is colloquially known, hit
a fresh 12-year low earlier in the session as Chinese stocks
tumbled again. However, China guided its yuan currency higher,
and offshore it surged against the dollar. Last
weak China allowed its currency to weaken, fueling fears about
its economy and weighing on risk appetite. 
    A report from the Canadian Mortgage and Housing Corp showed
the seasonally adjusted annualized rate of housing starts fell
to 172,965 units in December from an upwardly revised 212,028
units in November. Forecasters had expected 200,000 starts.
    Oil prices fell for a sixth session to trade at almost
12-year lows as concerns about China's economic slowdown weighed
on the outlook for demand this year. 
    U.S. crude prices were down 1.36 percent to $32.71 a
barrel, while Brent crude lost 1.76 percent to
    At 9:36 a.m. EST (1436 GMT), the Canadian dollar 
was trading at C$1.4095 to the greenback, or 70.95 U.S. cents,
stronger than the Bank of Canada's official close of C$1.4149,
or 70.68 U.S. cents.
    The currency's strongest level of the session was C$1.4065,
while it hit its weakest level since July 2003 at C$1.4188.
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 5
Canadian cents to yield 0.439 percent and the benchmark 10-year
 falling 38 Canadian cents to yield 1.339 percent.
    The curve steepened, as the spread between the 2-year and
10-year yields widened by 1.8 basis points to 90 basis points, 
indicating underperformance for longer-dated maturities.
    The Canada-U.S. two-year bond spread was 1.1 basis points
less negative at -52.1 basis points as Canadian government bonds
continued to pare recent outperformance at the front of the
curve. It follows a speech last week by Bank of Canada Governor
Stephen Poloz that offered no hint of a rate cut at the Jan. 20
interest rate announcement.
    The Bank of Canada releases the winter issues of the
Business Outlook Survey and the Senior Loan Officer Survey at
10:30 a.m. EST (1530 GMT).

 (Reporting by Fergal Smith; Editing by Nick Zieminski)