CANADA FX DEBT-C$ dips as oil prices fall, investors brace for Fed decision

* Canadian dollar at C$1.2686, or 78.83 U.S. cents
    * Bond prices lower across the maturity curve
    * 10-yr yield reaches highest since Dec. 7 at 1.564 pct

    By Fergal Smith
    TORONTO, April 25 (Reuters) - The Canadian dollar edged
lower against its U.S. counterpart on Monday as oil prices fell
and investor attention turned to an interest rate announcement
this week by the Federal Reserve.
    Stronger-than-expected retail sales data had helped the
loonie post its fourth consecutive week of gains on Friday.
    The currency has rallied 16 percent since falling to a
12-year low in January, helped by a smaller gap between Canadian
and U.S. bond yields and a rebound in oil prices since February.
    However, no one is willing to make big bets on the loonie
ahead of the Fed decision, leaving the currency to fluctuate
with oil prices, said Scott Smith, senior market analyst at
Cambridge Global Payments.
    Oil prices fell as data pointed to fresh U.S. crude builds.
U.S. crude prices settled more than $1 lower at $42.64 a
    "We will more or less be range bound in terms of market
activity until we get more clarification from the Federal
Reserve in terms of how they see the global economic outlook,"
said Smith.
    Federal Reserve policymakers are expected to hold interest
rates steady at Wednesday's announcement, but may tweak their
description of the economic outlook to leave the path open for
future rate rises.    
    The Canadian dollar closed at C$1.2686 to the
greenback, or 78.83 U.S. cents, slightly weaker than Friday's
close of C$1.2671, or 78.92 U.S. cents. 
    The currency's strongest level of the session was C$1.2653,
while its weakest was C$1.2717. Last week the loonie touched its
strongest since July 6 at C$1.2593.
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 3.5
Canadian cents to yield 0.696 percent and the benchmark 10-year
 falling 27 Canadian cents to yield 1.545 percent.
    The 10-year yield touched its highest since Dec. 7 at 1.564
percent, while its gap to the U.S. 10-year yield reached its
smallest since Jan. 26 last year at -37 basis points.
    Bank of Canada Governor Stephen Poloz will gives a speech to
the Investment Industry Association of Canada and Securities
Industry and Financial Markets Association in New York on
Tuesday, while Canada's gross domestic product data for February
is due at the end of the week. 

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli and
Tom Brown)