CANADA FX DEBT-C$ gains; growth pressures central bank to ease cautious stance

    * Canadian dollar at C$1.3298, or 75.20 U.S. cents
    * Bond prices lower across much of the yield curve

    By Fergal Smith
    TORONTO, March 31 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Friday after data
showing robust domestic growth in January increased pressure on
the Bank of Canada to abandon its cautious stance on a possible
interest-rate hike.
    Canada's economy expanded by a greater-than-expected 0.6
percent in January from December, indicating first-quarter
growth will be stronger than expected. Analysts in a Reuters
survey had forecast 0.3 percent growth.                  
    On Tuesday, Bank of Canada Governor Stephen Poloz defended
the central bank's cautious outlook on monetary policy
tightening - which contrasts with the U.S. Federal Reserve's
hike earlier this month and plan for more - in the face of
recent stronger-than-expected domestic data.            
    "It really makes it hard to imagine the Bank of Canada
sounding overly dovish in April," said Andrew Kelvin, senior
rates strategist at TD Securities.
    The chance of a Bank of Canada interest rate hike this year
rose to nearly 30 percent from less than 25 percent before the
GDP report, data from the overnight index swaps market showed.
    At 9:36 a.m. ET (1336 GMT), the Canadian dollar          was
trading at C$1.3298 to the greenback, or 75.20 U.S. cents,
stronger than Thursday's close of C$1.3334, or 75.00 U.S. cents.
    The currency traded in a range of C$1.3290 to C$1.3368.
    Gains for the loonie came even as the price of oil, one of
Canada's major exports, retreated after a three-day rally ran
out of steam.             
    U.S. crude        prices fell 0.32 percent to $50.19 a
    Canadian government bond prices were lower across much of
the yield curve, with the two-year            down 4 Canadian
cents to yield 0.773 percent and the 10-year             falling
6 Canadian cents to yield 1.645 percent.
    The difference between Canadian and U.S. 2-year yields
narrowed by 3.8 basis points to a spread of -49.7 basis points,
as Canadian bonds underperformed.

 (Reporting by Fergal Smith; Editing by Bernadette Baum)