CANADA FX DEBT-C$ surges to set 12-week high on oil, GDP data

(Adds quotes, details on federal budget and U.S. data, updates
    * Canadian dollar ended at C$1.3414, or 74.55 U.S. cents
    * Bond prices lower across the maturity curve

    By Fergal Smith
    TORONTO, March 1 (Reuters) - The Canadian dollar rallied
sharply against its U.S. counterpart on Tuesday, setting a fresh
12-week high as oil prices rose and after Canada's economy grew
more than expected in the fourth quarter.
    The Canadian economy slowed substantially in the quarter,
but the 0.8 percent annualized increase in gross domestic
product topped both economists' and policymakers' expectations
for zero growth.
    "The numbers this morning definitely helped because I think
the market was prepared for weaker data," said Shaun Osborne,
chief currency strategist at Scotiabank.
    "It suggests less onus on the Bank of Canada to push rates
    Market expectations for a rate cut continued to fade. The
implied probability of a July cut dipped to 26 percent from 33
percent from before the data. It was at 70 percent as recently
as Feb. 19.
    Attention has shifted to the Mar. 22 federal budget for
stimulus measures to support the economy.
    U.S. crude prices settled nearly 2 percent higher at
C$34.40 a barrel, maintaining their charge higher after a Wall
Street rally helped turn around crude prices depressed initially
by expectations that U.S. inventories had hit another record
    The Canadian dollar closed at C$1.3414 to the
greenback, or 74.55 U.S. cents, much stronger than Monday's
official close of C$1.3531, or 73.90 U.S. cents.
    The currency touched its strongest level since Dec. 7 at
C$1.3387, while its weakest was C$1.3550.
    "This move has probably left a few (U.S.) dollar sellers
behind," said Osborne. They would be grateful to sell into a
move back to C$1.36, he added.
    Canadian government bond prices were lower across the
maturity curve in sympathy with U.S. Treasuries after
encouraging U.S. factory and construction data suggested the
world's biggest economy was regaining momentum. 
    The two-year price was down 2.5 Canadian cents to
yield 0.532 percent and the benchmark 10-year fell
43 Canadian cents to yield 1.237 percent.
    The spread between the 2-year and 10-year yields widened by
3.6 basis points to 70.5 basis points, indicating
underperformance for longer-dated maturities.
    Canadian trade data for January is awaited on Friday.

 (Reporting by Fergal Smith; Editing by Lisa Von Ahn and Sandra