CANADA FX DEBT-C$ strengthens to 2-1/2-month high as oil rallies

* Canadian dollar at C$1.3516 or 73.99 U.S. cents
    * Currency touched its highest since Dec. 8 at C$1.3505
    * Bond prices lower across the maturity curve

    TORONTO, Feb 26 (Reuters) - The Canadian dollar strengthened
on Friday to a 2-1/2-month high against its U.S. counterpart as
crude oil prices and global stocks rallied.
    Crude oil prices rose as strong U.S. gasoline demand and
hopes of OPEC action outweighed concerns over fundamental
    U.S. crude prices were up 4.11 percent to $34.43 a
    Adding to support for the risk-sensitive commodity currency,
stock markets inched higher for the third day in five as G20
policymakers meeting in Shanghai sought to find common ground on
how to reboot a struggling global economy.    
    While the U.S. dollar softened against the loonie, the
greenback rose against a basket of major currencies, helped by
an upward revision to U.S. fourth quarter growth. 
    At 9:27 a.m. EST (1427 GMT), the Canadian dollar 
was trading at C$1.3516 to the greenback, or 73.99 U.S. cents,
stronger than Thursday's official close of C$1.3541, or 73.85
U.S. cents.
    The currency's touched its strongest level since Dec. 8 at
C$1.3505, while its weakest was C$1.3564.    
    It has extended recovery from a 12-year low of C$1.4689 in
January, helped by stabilization in crude oil prices and the
shifting of the fiscal stimulus burden from the Bank of Canada
to the Canadian government.
    On Monday, Finance Minister Bill Morneau said the government
will push ahead with plans to invest in infrastructure projects.
 Adding private-sector spending to projects could
spur even greater spending and limit the need for a Bank of
Canada rate cut. 
    The implied probability of a Bank of Canada rate cut by
mid-year has dropped to 37 percent from around 60 percent at the
start of the week. 
    Canadian government bond prices were lower across the
maturity curve on reduced demand for safe haven assets. The
two-year price fell 3 Canadian cents to yield 0.509
percent and the benchmark 10-year was down 48
Canadian cents to yield 1.195 percent.
    The curve steepened in sympathy with U.S. Treasuries, as the
spread between the 2-year and 10-year yields widened by 3.7
basis points to 68.6 basis points, indicating underperformance
for longer-dated maturities.

 (Reporting by Fergal Smith Editing by W Simon)