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

    * Canadian dollar at C$1.2116, or 82.54 U.S. cents
    * Loonie touches its strongest since May 2015 at C$1.2112
    * Bond prices mixed across a flatter yield curve
    * Canada's 5-year yield climbs above U.S. equivalent

    By Fergal Smith
    TORONTO, Sept 7 (Reuters) - The Canadian dollar strengthened
on Thursday to a new 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.
    At 5 p.m. EDT (2100 GMT), the Canadian dollar          was
trading at C$1.2116 to the greenback, or 82.54 U.S. cents, up
0.9 percent. The loonie's weakest level of the session was
C$1.2241, while it touched its strongest since May 2015 at
    "It's on fire," said David Bradley, director of foreign
exchange trading at Scotiabank. "There is some expectation that
we are going to see further appreciation of the Canadian dollar
and further interest rate (hikes) being priced in over the next
six months."
    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.                         
    Its policy rate sits at 1 percent.
    The U.S. dollar        fell broadly as the European Central
Bank indicated a decision on tapering stimulus is likely in
October, while worries about the impact of hurricanes Irma and
Harvey on the U.S. economy weighed on U.S. Treasury yields.
    Gains for the loonie came even as U.S. oil prices       
settled 0.1 percent lower at $49.09 a barrel, after a
bigger-than expected crude stock build.             
    Oil is one of Canada's major exports.
    Canadian government bond prices were mixed across a flatter
yield curve, with the two-year            down 4.5 Canadian
cents to yield 1.475 percent and the 10-year             rising
6 Canadian cents to yield 1.939 percent.
    The gap between the 2-year yield and its U.S. counterpart
widened by 6.8 basis points to a spread of 20.1 basis points,
its widest since January 2015, while the 5-year spread turned
positive for the first time since October 2014.
    Canada's employment report for August is due on Friday.

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli and
James Dalgleish)