CANADA FX DEBT-C$ strengthens to 5-month high on solid GDP data

* Canadian dollar at C$1.2907, or 77.48 U.S. cents
    * Bond prices mixed across the maturity curve

    By Fergal Smith
    TORONTO, March 31 (Reuters) - The Canadian dollar
strengthened to a new five-month high against its U.S.
counterpart on Thursday as stronger-than-expected domestic data
further dented expectations for a Bank of Canada rate cut.
    Canada's economy grew by a much larger-than-expected 0.6
percent in January, Statistics Canada data indicated. It was the
fourth straight monthly gain and the biggest since July 2013.
    That puts the economy on track to grow much faster than the
Bank of Canada's 1 percent estimate for the first quarter,
according to Paul Ferley, assistant chief economist at Royal
Bank of Canada.
    "It does appear we are seeing this reorientation towards
non-resource sectors of the economy," he added.
    The currency has rallied 7 percent since the start of the
year and 13 percent since hitting a 12-year low in January at
C$1.4689. It has been helped by recovery in crude oil prices,
stabilization in financial markets and reduced expectations for
Bank of Canada rate cuts.     
    The implied probability of a rate cut this year dropped to
17 percent from 26 percent before the data. It was more than 50
percent at the start of the month. 
    The U.S. dollar weakened against a basket of major
currencies as dovish comments on Tuesday from Federal Reserve
Chair Janet Yellen continued to weigh, while the number of
Americans filing for unemployment benefits unexpectedly rose
last week.  
    Oil futures pared earlier losses, but the recovery was muted
as the market's focus switched back to signs of growing oil
    U.S. crude prices were down 0.91 percent to $37.97 a
    At 9:18 a.m. EDT (1318 GMT), the Canadian dollar 
was trading at C$1.2907 to the greenback, or 77.48 U.S. cents,
stronger than Wednesday's close of C$1.2965, or 77.13 U.S.
    The currency's weakest level of the session was C$1.3012,
while it touched its strongest since Oct. 16 at C$1.2881.    
    Canadian government bond prices were lower across much of
the maturity curve, with the two-year price down 4
Canadian cents to yield 0.553 percent and the benchmark 10-year
 falling 12 Canadian cents to yield 1.238 percent.
    The Canada-U.S. two-year bond spread narrowed 2.8 basis
points to -20.4 basis points, its least negative since Nov. 10,
while the 10-year spread was 2.4 basis points less negative at
-58.1 basis points as Canadian government bonds underperformed. 

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli)