CANADA FX DEBT-C$ firms against weaker greenback as trade tensions rise

    * Canadian dollar at C$1.2873, or 77.68 U.S. cents
    * Oil prices fall 1.1 percent
    * Bond prices lower across the yield curve

    TORONTO, April 2 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Monday as the
greenback broadly fell and investors weighed the possible
repercussions of an escalating trade dispute between the world's
biggest economies.
    The U.S. dollar        retreated against a basket of major
currencies, paring some of last week's gains.             
    China has increased tariffs by up to 25 percent on 128 U.S.
products in response to U.S. duties on imports of aluminium and
    A global trade war could hurt Canada's commodity-linked
    The price of oil, one of Canada's major exports, fell even
as investors weighed a drop in drilling activity in the United
States and the potential for Washington to reintroduce sanctions
against Iran.             
    U.S. crude        prices were down 1.1 percent to $64.2 a
    At 9:42 a.m. EST (1342 GMT), the Canadian dollar         
was trading 0.2 percent higher at C$1.2873 to the greenback, or
77.68 U.S. cents. The currency traded in a range of C$1.2864 to
    Gains for the loonie came as data showed the pace of growth
in the Canadian manufacturing sector firmed in March. The Markit
Canada Manufacturing Purchasing Managers' index, a measure of
manufacturing business conditions, increased to a seasonally
adjusted 55.7 last month from 55.6 in February.             
    Still, the loonie fell 2.4 percent against the greenback in
the first quarter.
    Canadian government bond prices were lower across the yield 
curve in sympathy with U.S. Treasuries as investors turned
attention to Friday's U.S. and Canadian jobs data.
    The two-year            fell 3 Canadian cents to yield 1.794
percent and the 10-year             declined 27 Canadian cents
to yield 2.126 percent.
    On Thursday, the 10-year yield touched its lowest intraday
since Jan. 4 at 2.073 percent.

 (Reporting by Fergal Smith; Editing by David Gregorio)