CANADA FX DEBT-C$ strengthens as oil prices turn higher

    * Canadian dollar at C$1.3450, or 74.35 U.S. cents
    * Bond prices lower across steeper yield curve

    TORONTO, March 13 (Reuters) - The Canadian dollar edged
higher on Monday against its U.S. counterpart as prices of oil
reversed earlier losses, while investors braced for an expected
U.S. interest rate hike this week.
    U.S. crude        prices were up 0.04 percent at $48.51 a
barrel. Oil had hit an earlier three-month low as rising U.S.
inventories and drilling activity offset optimism over the
Organization of the Petroleum Exporting Countries' efforts to
restrict crude output.             
    A Federal Reserve rate increase would be the second in four
months, a pace unseen since the peak of the U.S. housing boom in
2006. It follows data on Friday which showed U.S. employers
hired workers at a robust pace in February.             
    But data on Friday also showed stronger-than-expected
domestic jobs, which tempered expectations for policy divergence
between the Bank of Canada and the Federal Reserve.
    At 9:40 a.m. ET (1340 GMT), the Canadian dollar          was
trading at C$1.3450 to the greenback, or 74.35 U.S. cents,
slightly stronger than Friday's close of C$1.3463, or 74.28 U.S.
    The range for the currency was C$1.3440 to C$1.3473.
    Speculators trimmed bullish bets on the Canadian dollar,
data from the Commodity Futures Trading Commission and Reuters
calculations showed on Friday. Canadian dollar net long
positions dipped to 29,220 contracts as of March 7 from 30,090 a
week earlier.             
    Canadian government bond prices were lower across a steeper
yield curve, with the two-year            down 1.5 Canadian
cents to yield 0.851 percent and the 10-year             falling
31 Canadian cents to yield 1.85 percent.
    The gap between Canadian and U.S. 10-year yields narrowed by
2.4 basis points to a spread of -74.7 basis points.
    Canadian manufacturing sales data is due on Friday. Sales
are expected to have decreased by 0.4 percent in January after
rising for the previous two months.         

 (Reporting by Fergal Smith; Editing by Chizu Nomiyama)