CANADA FX DEBT-C$ hits fresh 12-year low on oil rout, rate cut bets

* Canadian dollar at C$1.4629 or 68.36 U.S. cents
    * Currency hit a fresh 12-year low at C$1.4689
    * Bond prices higher across the maturity curve
    * The 10-year yield hit a fresh record low at 1.094 percent

    TORONTO, Jan 20 (Reuters) - The Canadian dollar tumbled to a
fresh 12-year low against its U.S. counterpart on Wednesday as
an oil rout deepened and global stocks fell, while the market
raised bets that the Bank of Canada will cut interest rates.
    U.S. crude touched its lowest since 2003, as a global supply
glut bumped up against bearish financial news that sparked
deeper worries over demand. 
    Recent widening in credit spreads have tightened financial
conditions, adding to the reasons for the Bank of Canada to cut
rates today, according to a research note this morning from BMO
Capital Markets.
    On the other hand, some economists believe that the drop in
the Canadian dollar has done the "heavy lifting" for the central
bank, while a sharper move lower in the currency could weigh on
    The market has fully discounted a rate cut by April. On
Tuesday, a rate cut was not fully discounted until May.
Moreover, it has implied a near 50-percent probability of a
second rate cut by the end of the year.    
    At 9:08 a.m. EST (1408 GMT), the Canadian dollar 
was trading at C$1.4629 to the greenback, or 68.36 U.S. cents,
weaker than Tuesday's close of C$1.4559, or 68.69 U.S. cents.
    The currency's strongest level of the session was C$1.4554,
while it hit its weakest level since April 2003 at C$1.4689.
    Adding to the gloom for Canada's economy, a major oil and
gas producer Husky Energy cut capital spending and
production forecasts.  In addition, a report by TD
Securities said oil sands producers now lose money on every
barrel produced.        
    Firmer-than-expected economic data reported by Statistics
Canada was overshadowed by the spike in risk aversion.
    Canadian manufacturing sales increased by 1.0 percent in
November, breaking a three-month falling streak. 
    Wholesale trade surged by 1.8 percent in November from
October, recording the first rise in five months. 
    Canadian government bond prices were higher across the
maturity curve on the flight to safety. The two-year 
price was up 5.5 Canadian cents to yield 0.263 percent and the
benchmark 10-year rose 48 Canadian cents to yield
1.126 percent.
    The 10-year yield hit a fresh record low at 1.094 percent.

 (Reporting by Fergal Smith; Editing by Nick Zieminski)