CANADA FX DEBT-C$ notches 5-week high as trade outlook brightens

 (Adds strategist quote, details on market activity, updates
    * Canadian dollar at C$1.2758, or 78.38 U.S. cents
    * Loonie touches its strongest since Feb. 27 at C$1.2745
    * Bond prices mixed across steeper yield curve

    By Fergal Smith
    TORONTO, April 5 (Reuters) - The Canadian dollar
strengthened to a five-week high against its U.S. counterpart on
Thursday as an improving trade outlook offset domestic data
showing a wider trade deficit.
    The United States, Mexico and Canada are "moving forward in
a significant way" at talks to modernize the North American Free
Trade Agreement, Canadian Prime Minister Justin Trudeau said.
    Investors' worries of an escalating trade conflict between
the United States and China have also eased. Stocks on Wall
street rose for a third straight day.               
    "The (trade) outlook isn't as bleak," said Bipan Rai, senior
macro strategist at CIBC Capital Markets. "The premium that was
associated with trade and the Canadian dollar has eased a lot
over the last couple of days."
    Canada sends about 75 percent of its exports to the United
States. Its commodity-linked economy could be hurt if global
trade slows or NAFTA is scrapped.  
    The country's trade deficit in February jumped to C$2.69
billion from C$1.94 billion in January as rail transport
problems slashed exports of wheat and canola, Statistics Canada
said. Analysts had forecast a C$2 billion shortfall.    
    "With the Bank of Canada in data dependent mode, this
morning's report is not going to do much to pull them off the
sidelines," Dina Ignjatovic, an economist at Toronto-Dominion
Bank, said in a research note.
    Chances of a Bank of Canada interest rate hike by May held
at less than 50 percent, the overnight index swaps market
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading 0.1 percent higher at C$1.2758 to the greenback, or
78.38 U.S. cents. The currency touched its strongest level since
Feb. 27 at C$1.2745.    
    The price of oil, one of Canada's major exports, was
supported by gains in U.S. equities markets and Saudi Arabia's
unexpected hike in crude prices. U.S. crude        prices
settled 0.3 percent higher at $63.54 a barrel.             
    Canadian government bond prices were mixed across a steeper
yield curve, with the two-year            up 1 Canadian cent to
yield 1.812 percent and the 10-year             falling 5
Canadian cents to yield 2.182 percent.
    Canada's employment report for March is due on Friday.

 (Reporting by Fergal Smith
Editing by Susan Thomas)