CANADA FX DEBT-C$ recovers ground after oil output freeze deal fails

(Adds currency trader comment, updates prices to close)
    * Canadian dollar settles at C$1.2797, or 78.14 U.S. cents
    * Loonie touched weakest since April 11 before recovering
    * Bond prices lower across the maturity curve

    By Alastair Sharp
    TORONTO, April 18 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Monday, winning
back all the ground it lost after the scuttling of a plan by
major oil producers to freeze production sunk oil prices.
    The failure to reach a deal in Doha on Sunday initially
pushed oil sharply lower, but prices recovered some losses in
North American afternoon trade. 
    "The currency moved very much to reflect the sentiment that
if oil can hold itself around $40 (a barrel), then dollar/Canada
can certainly hold itself at sub-C$1.30," said Don Mikolich,
executive director for foreign exchange sales at CIBC Capital
    The Canadian dollar settled at C$1.2797 to the
greenback, or 78.14 U.S. cents, stronger than Friday's close of
C$1.2837, or 77.90 U.S. cents.
    The currency's strongest level of the session was C$1.2795,
while it touched its weakest since April 11 at C$1.2990 early in
the session.    
    Mikolich said that recent weaker U.S. economic data led CIBC
last week to push their expectation for the next Federal Reserve
hike of U.S. interest rates out to September from June, while
stronger Canadian numbers and comments from the Bank of Canada
point to a more robust domestic outlook. 
    "Just a while ago things felt fairly dire, frankly," he
said. "More of it is needed, but the turnaround in the data has
been a positive one."
    The overnight index swaps market has moved to imply a slight
probability of a Bank of Canada interest rate hike this year
after having implied a more than 50 percent probability of a cut
at the start of March. 
    Speculators have increased bullish bets on the loonie,
Commodity Futures Trading Commission data showed on Friday.
    Net long Canadian dollar positions rose to 2,385 contracts
in the week ended April 12 from 97 contracts the prior week. At
the end of January, net short exposure was the highest in five
months at 66,819 contracts. 
    Foreign investors bought a net C$15.94 billion ($12.36
billion) in Canadian securities in February, mainly in bonds,
Statistics Canada said. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 1.5
Canadian cents to yield 0.600 percent and the benchmark 10-year
 falling 29 Canadian cents to yield 1.303 percent.
    U.S. crude prices settled down 1.44 percent at $39.78
a barrel, while Brent settled down 0.4 percent at $42.91.

 (Additional reporting by Fergal Smith; editing by Andrea Ricci,
G Crosse)