CANADA FX DEBT-C$ hits 2-month low as oil drops below $50

 (Adds strategist comment, updates prices to close)
    * Canadian dollar settles at C$1.3508, or 74.03 U.S. cents
    * Loonie touches its weakest since Dec. 29 at C$1.3535
    * Bond prices lower across the yield curve
    * Spreads vs U.S. yields at or near widest since Jan. 2016

    By Alastair Sharp
    TORONTO, March 9 (Reuters) - The Canadian dollar fell to a
fresh two-month low against the greenback on Thursday as oil
prices slumped to levels not seen since an OPEC-led pact to curb
production, and the gap between U.S. and Canadian yields
    Oil               , one of Canada's major exports, extended
its biggest price falls this year as record U.S. crude
inventories kept sentiment weak, pointing to a global glut
despite supply cuts.             
    Meanwhile, Canada's 5-year yield fell 2.7 basis points
further below its U.S. equivalent to a spread of -87.8 basis
points, its widest gap since January 2016, while the 2-year
spread was just shy of a similar record.
    "With interest rate differentials where they are and oil
prices falling back, I'm not too surprised at all to see the
Canadian dollar under the cosh a little bit here," said Shaun
Osborne, chief currency strategist at Scotiabank.
    The Canadian dollar          settled at C$1.3508 to the
greenback, or 74.03 U.S. cents, weaker than Wednesday's close of
C$1.3494, or 74.11 U.S. cents.
    The currency's strongest level of the session was C$1.3482,
while it touched its weakest since Dec. 29 at C$1.3535.
    Increased expectations that the Federal Reserve will raise
U.S. interest rates next week has added to recent pressure on
the Canadian dollar. In contrast, the Bank of Canada is expected
to wait until 2018 before raising rates.             
    Employment reports due on Friday from both Canada and the
United States could heap further pressure on the loonie.
    "If we get (250,000 jobs added) or better in the U.S. and
anything with a negative print on it for Canada we are going to
be certainly challenging the high C$1.35s if not C$1.36 and
beyond," Osborne said.
    The loonie twice approached C$1.36 in recent months before
    Canada's industrial capacity use rose to its highest in two
years in the fourth quarter, lifted by gains in the mining and
quarrying sector and a rebound in construction, Statistics
Canada said.             
    Canadian new home prices edged up at the start of the year,
driven again by higher prices in the hot Toronto market,
separate data from StatsCan showed.             
    Canadian government bond prices were lower across a steeper
yield curve, with the two-year            off 1 Canadian cent to
yield 0.826 percent and the 10-year             falling 27
Canadian cents to yield 1.809 percent.

 (Additional reporting by Fergal Smith; Editing by James