CANADA FX DEBT-C$ notches 2-year high on prospects of further rate hikes

    * Canadian dollar at C$1.2165, or 82.20 U.S. cents
    * Loonie touches its strongest since June 2015 at C$1.2139
    * Bond prices lower across the yield curve

    By Fergal Smith
    TORONTO, Sept 7 (Reuters) - The Canadian dollar strengthened
on Thursday to a 2-year high against its U.S. counterpart as the
market weighed prospects of additional Bank of Canada interest
rate hikes and the greenback lost ground against a basket of
major currencies.
    The Bank of Canada struck a more confident approach to
economic growth on Wednesday with its second rate hike in three
months, pushing to the front of the pack of major central banks
including the U.S. Federal Reserve.                         
    The central bank has now taken back two cuts it delivered in
2015 to offset the impact on the economy of a sharp drop in the
price of oil, one of Canada's major exports. Market players have
been weighing prospects of additional hikes.
    "The upbeat view on growth point to more tightening than we
previously expected over the next year," Robert Kavcic, senior
economist at BMO Capital Markets, said in a research note.
    The U.S. dollar        fell broadly as the European Central
Bank stuck to its outlook for growth and inflation.
    At 9:35 a.m. ET (1335 GMT), the Canadian dollar          was
trading at C$1.2165 to the greenback, or 82.20 U.S. cents, up
0.5 percent.
    The loonie's weakest level of the session was C$1.2241,
while it touched its strongest since June 2015 at C$1.2139.
    Oil prices dipped, but hovered near 3-1/2-month highs as
U.S. refiners restarting after Hurricane Harvey increased their
crude processing and as the U.S. dollar declined.      
    U.S. crude        prices were last down 0.41 percent at
$48.96 a barrel.
    Canadian government bond prices were lower across the yield
curve, with the two-year            down 6.5 Canadian cents to
yield 1.485 percent and the 10-year             falling 17
Canadian cents to yield 1.966 percent.
    Canada's employment report for August is due on Friday.

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli)