CANADA FX DEBT-C$ weakens to 2-week low on trade data, oil output fears

* Canadian dollar at C$1.2805, or 78.09 U.S. cents
    * Loonie touches weakest level since April 18
    * Bond prices higher across maturity curve

    By Fergal Smith
    TORONTO, May 4 (Reuters) - The Canadian dollar weakened to a
two-week low against its U.S. counterpart on Wednesday after
disappointing domestic trade data and as a wildfire threatened
production in the country's oil sands region.
    The trade deficit in March unexpectedly widened to a record
C$3.41 billion ($2.66 billion) as exports sank for a second
month on widespread weakness, Statistics Canada data indicated.
    The economy remains on track to grow more than 3 percent in
the first quarter, but the data provides a "weak handoff" going
into the second quarter, said Paul Ferley, the assistant chief
economist at Royal Bank of Canada.
    "Certainly as we move through the second quarter the Bank
(of Canada) is going to be wanting to see indications of exports
rebounding," he added.    
    Fire raged unchecked overnight through the Western Canadian
city of Fort McMurray, the heart of Canada's oil sands region.
    It will likely weigh on Canada's gross domestic product in
May as production is cut back.
    World stocks fell for the second successive day and metals
prices declined amid signs of a renewed and prolonged downturn
in global growth, adding to headwinds for Canada's
risk-sensitive resource-linked currency. 
    At 9:21 a.m. EDT (1321 GMT), the Canadian dollar 
was trading at C$1.2805 to the greenback, or 78.09 U.S. cents.
That compared to Tuesday's close of C$1.2713, or 78.66 U.S.
    The currency's strongest level of the session on Wednesday
was C$1.2698, while it touched its weakest since April 18 at
    Oil prices rose as reduced production in Canada's oil sands
region pushed aside concern about excess global supplies and
expectations of rising U.S. crude inventories. U.S. crude 
prices were up 1.90 percent to $44.48 a barrel. 
    Most automakers reported higher Canadian sales in April.
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 5.5
Canadian cents to yield 0.615 percent and the benchmark 10-year
 rising 22 Canadian cents to yield 1.436 percent.
    The Canada-U.S. two-year bond spread was 2 basis points more
negative at -13.5 basis points, while the 10-year spread was 1.2
basis points more negative at -35.3 basis points as Canadian
government bonds outperformed.

 (Reporting by Fergal Smith; Editing by Paul Simao)