CANADA FX DEBT-C$ strengthens to fresh 9-month high as oil rallies

* Canadian dollar at C$1.2650, or 79.05 U.S. cents
    * Loonie touches its strongest since July 6 at C$1.2593
    * Bond prices lower across the maturity curve

    By Fergal Smith
    TORONTO, April 20 (Reuters) - The Canadian dollar
strengthened to a nine-month high against its U.S. counterpart
on Wednesday, shrugging off weaker than expected domestic data
as oil prices turned higher.
    The currency has rallied 16 percent since hitting a 12-year
low in January, helped by the recent rebound in oil prices.
    "The slightest hint of good news for oil and it is off to
the races and the Canadian dollar is along for the ride," said
Adam Button, currency analyst at ForexLive.
    U.S. crude prices settled at $42.63 a barrel, up 3.77
percent after a smaller-than-expected build in U.S. crude
inventories and as oil bulls bet that major crude producers
would meet again to try to curtail output. 
    Unraveling of expectations for the Bank of Canada to cut
interest rates has added to support for the loonie.
    "If anything the next move from the Bank of Canada is most
likely to be a hike, that's a major change from two months ago,"
said Button.
    Data from overnight index swaps implies almost no change in
interest rates by the Bank of Canada this year. At the start of
March, the market had implied a more than 50 percent probability
of a rate cut. 
    The Canadian dollar closed at C$1.2650 to the
greenback, or 79.05 U.S. cents, slightly stronger than Tuesday's
close of C$1.2660, or 78.99 U.S. cents.
    The currency's weakest level of the session was C$1.2731,
while it touched its strongest since July 6 at C$1.2593.
    "The Canadian dollar is in the sweet spot for the economy,
for exporters," said Button.     
    Canadian wholesale trade dropped by more than expected in
February, falling 2.2 percent from January on declines in most
industries. However, it followed three consecutive monthly
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 2
Canadian cents to yield 0.626 percent and the benchmark 10-year
 falling 8 Canadian cents to yield 1.335 percent.
    The Canada-U.S. 10-year spread was 5.3 basis points more
negative at -51.0 basis points as U.S. Treasuries
underperformed. On Tuesday, it touched its smallest gap since
May last year at -45.7 basis points.

 (Reporting by Fergal Smith; editing by Nick Zieminski and David